Senior Managers and Certification Regime: The basics
Author: Sarah Leslie
The Senior Managers and Certification Regime (SMCR) will apply to all Financial Conduct Authority (FCA) solo-regulated firms from 9 December 2019. In the first in a series of four articles, Sarah Leslie sets out the key elements of the new regime, and looks at the new directory.
The SMCR is part of the drive to restore confidence in the financial services industry after the 2008 banking crisis. The aim of the SMCR is to improve the culture within financial services firms and to increase the accountability of individuals who make decisions that affect markets and customers.
The SMCR has applied to UK banks, building societies, credit unions, branches of foreign banks operating in the UK, and the largest investment firms, since March 2016. Insurers were brought into the regime in December 2018.
On 9 December 2019, the SMCR will replace the Approved Persons Regime for all FCA solo-regulated firms, except benchmark administrators. The SMCR will be extended to benchmark administrators at a later date after certain sector-specific issues have been addressed.
The FCA has made some changes to the SMCR for solo-regulated firms to reflect the diverse nature of these firms, which can range from dentists with credit facilities to multi-national asset managers.
Main changes under the new regime
The current regime is the Approved Persons Regime, while the SMCR creates two regimes: the Seniors Managers Regime (SMR) and the Certification Regime (CR).
The SMR comprises the top layer of executive management of the firm, including ordinary non-executive directors. Senior managers will have clearer individual responsibilities and greater accountability than under the current regime. The regulators will have strengthened powers of approval and enforcement.
The CR will cover a broader group of employees than those covered by the Approved Persons Regime. Firms will be responsible, instead of the FCA, for assessing and certifying these staff as fit and proper to perform their roles.
New conduct rules will reflect the core standards expected of staff that work for relevant firms.
Three-tiered approach
To ensure a proportionate application of the SMCR, the FCA has categorised solo-regulated firms into three tiers:
- Limited Scope: These firms currently have certain exemptions under the Approved Persons Regime, and will be subject to the fewest requirements under the SMCR. For example, sole traders, subsidiaries of local authorities, registered social landlords, service companies or participants in certain markets.
- Core: This tier covers most asset management firms and they will have to comply with the main requirements of the SMCR.
- Enhanced: These are the small number of firms that are large and complex and warrant more attention because of their potential impact on consumers and markets. These firms will have additional requirements related to handover arrangements and responsibility maps.
If firms are uncertain about which tier they are in, they can check by using the FCA's flow chart on page 33 of the near-final rules.
This series of articles focuses mainly on the requirements under the SMCR for core firms, although the information is also applicable to enhanced firms.
Key elements of the SMCR
While there are differences between the tiers, notably in relation to which senior manager functions (SMFs) will apply, the SMCR has three basic elements: the SMR, CR and conduct rules, which apply to all three tiers.
SMR
The most senior individuals within a firm must be approved by the FCA. Applications need to be submitted that include a short statement of that individual's responsibilities and a note of which SMF(s) they will hold.
CR
Employees who are not senior managers, but whose actions could have a significant impact on customers, the markets or the firm, must be certified by their employer as fit and proper. This assessment must be undertaken on their appointment and at least once a year thereafter.
Conduct rules
The new conduct rules will apply to nearly all employees in the financial services sector. These employees must:
- act with integrity;
- act with due skill, care and diligence;
- be open and cooperative with the FCA, the Prudential Regulation Authority (PRA) and other regulators;
- pay due regard to the interests of customers and treat them fairly; and
- observe proper standards of market conduct.
The only staff exempt from the conduct rules are "ancillary" staff such as cleaners, receptionists, catering and security staff.
Senior managers have additional conduct rules that apply to them, which is discussed in the fourth article in this series on the SMCR.
The directory
The FCA is introducing a new central directory, which complements the aims of the SMCR. The directory is expected to go live in March 2020. The directory will contain details of directors and senior managers, all staff certified as fit and proper by their firm, and all other important individuals who undertake business with clients and require a qualification to do so. Each firm will be responsible for updating the information they provide, and the following information will be publically available:
| Employer details | Restrictions applying to a firm's regulated activities | Individual's name |
| Individual reference number | Relevant roles held | Start and end date of each role |
| Type of business the individual is qualified to undertake | Workplace location | Customer engagement methods |
| Memberships of relevant accredited bodies | Regulatory sanctions and prohibitions | Date information was last updated |
Firms will have seven business days to update information on joiners, leavers and changes in circumstances. Behind the scenes, firms will also have to provide the registered individual's NI number and/or passport number to enable them to identify the person correctly.
FCA solo-regulated firms will be able to submit data to the directory after the extension of the SMCR on 9 December 2019. They will have until 9 December 2020 to upload their data to the directory for the first time.
