February 06, 2018

Senior Managers Regime Update


The Financial Conduct Authority (FCA) is proposing to extend the Senior Managers & Certification Regime (SMCR) to all FCA authorised firms. The consultation period for feedback ended on the 3rd of November.

 
Following the feedback, the FCA are now consulting on how Financial Services and Markets Act (FMSA) authorised firms and individuals will transition to SMCR. The consultation period for this ends on the 21st February.
 
The date on which the finalised policy statement will come into force is still unknown, but it is estimated this will be in the summer of 2018.

 

Fitness and propriety

 
With the introduction of the new Senior Managers Regime in March 2016, financial firms are now legally required to assess a person’s ‘fitness and propriety’ to perform a Senior Management Function (SMF). This is reviewed annually.
 
Senior Managers are defined as those who perform a Senior Management Function (SMF), and who have ‘key roles or overall responsibility, including the risk of serious consequences to the firm, business, or other interests from the UK’.
 
‘Fitness and propriety’ includes:
  • honesty (including openness with self-disclosures, integrity and reputation)
  • competence and capability; and
  • financial soundness 
 
The overarching aim is to reduce harm to consumers. This is achieved by raising the standards of conduct for everyone who works in financial services, and by making senior people more responsible and accountable for their actions. This accountability is not just for the larger organisations but also smaller firms.
 
Many of our clients are already implementing plans to ensure they comply with the extended regime. This has involved assessing what checks are required for certain roles, e.g. regulatory referencing and criminal checks.
 
According to the SMCR, those in Certification Functions are required to undertake regulatory referencing but are not mandated to undertake criminal checks. The FCA has advised it is up to the individual companies to decide if they want to include criminal checks.
 
Some of our clients are following what they view as ‘best practice’ and extending the criminal checks to all members of staff in contact with clients.

 

How to achieve best practice

 
But whatever your approach, if you are due to be affected by the extension to the Senior Manager’s Regime you should give careful consideration to:
 

1.Frequency and range of checks

 
The responsibility of deciding which current employees to re-screen, and how often to do so, lies with each individual firm. Each firm must assess the time and costs of re-screening every SMR employee annually, against the risks of not doing so.
 

2.International considerations

 
In certain countries, the new requirements are incompatible with local privacy laws. The FCA expects ‘best efforts’ to be made to ensure that thorough checks are carried out in international locations for those employees affected by the new regime.
 

3.Creating a positive experience for those being checked

 
The new regime is already having a big impact on the recruitment process for financial services. It’s no longer acceptable for individuals to assume a senior management role before their background checks are complete.
 
Employees need to understand why they are being screened and that delays can be prevented by providing documentation quickly and disclosing any adverse information which could affect the outcome of their checks.
 
Is your organisation prepared for the SMCR extension? Have you considered all the implications involved?
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Guide to Regulatory Referencing
In this guide, we discuss the background to the senior managers new regime, what constitutes a regulatory reference, what must be included and who requires it.
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