Part of the UK regulators’ ongoing drive to improve culture, accountability and governance within financial services organisations, the Senior Managers and Certification Regime (SM&CR) aims to improve awareness of, and responsibility for, conduct issues throughout individual firms.
What is the SM&CR?
While the Financial Conduct Authority (FCA)’s general Conduct Rules apply to almost every employee who undertakes financial services activity, some rules only apply to senior managers who perform key roles, and who require FCA approval before starting their duties.
The Certification Regime applies to roles which have the power to cause significant damage to a financial services firm or its customers. Under this regime, firms must regularly certify that the employees performing such roles are appropriately fit and proper to do so.
What firms does the SM&CR apply to?
Banks and PRA-designated investment firms have already been subject to the SM&CR since March 2016.
In July 2018, the FCA published its plans to extend the scope of the SM&CR to include all FSMA-authorised firms, with rules proportionate to their size.
The Treasury has confirmed that the extension will commence from 9th December 2019, and that it will also apply to branches of non-UK firms with permission to carry out regulated activities in the UK.
The SM&CR also replaces the current Approved Persons Regime, under which an FCA-approved person undertakes pre-defined ‘controlled functions’ within an authorised firm.
How will SM&CR apply to individual firms?
The planned extension to the SM&CR will affect almost every FCA-regulated firm, from sole traders to large global organisations.
There are three defined tiers under the SM&CR, which can be summarised as follows:
Core – under which firms must comply with the baseline requirements.
Enhanced – extra requirements will apply to a small number of firms whose size, complexity and potential impact on consumers or markets require further attention.
Limited Scope – will apply to those firms who currently have exemptions under the Approved Persons Regime.
How to prepare your firm for the SM&CR
It is recommended that solo-regulated firms check which tier of the regime will apply to them, using this checker tool.
The FCA has published a guide to the SM&CR, which provides a summary of the final rules and is intended to give practical assistance to solo-regulated firms as they make their preparations.
For further information or specific guidance regarding the SM&CR, please contact a member of our team.