5 Things You Need to Know About SMCR

The Senior Managers and Certification Regime (SMCR) is a hot compliancy issue at the moment and following three years since its initial implementation, we are one step closer to its deadline this December.

The Senior Managers Certification Regime is commonly known as SMCR (or SM&CR) and its main function aims to hold top level executives and Non-Executive Directors individually accountable for their part of the business. Accordingly, every senior manager must be assessed as fit and proper for regulatory approval. We highlight the main things you need to know about SMCR.

  1. Who does it impact?

The SMCR affects any deposit taking banks, insurers and investment managers. The rollout of this regulatory change already applies to UK banks, building societies, credit unions and branches of foreign banks operating in the UK, who should have been fully compliant by December 2016.

The insurance industry were required to be fully compliant by December 2018 and if your firm is currently regulated under the Approved Persons Regime, this will be replaced by SM&CR from 9 December 2019.

On an organisational level, the SMCR affects senior managers who need to show responsibility for their actions or anything that is deemed potentially ‘harmful’ and this is something that should be enforced as part of the corporate culture and facilitated by HR teams. It sometimes been misunderstood or minimised as merely as HR re-papering exercise, when in fact it is far more extensive change across companies.

  • Why was it started?

The new regulation was driven by the banking crisis of 2008 and aims to hold senior staff more accountable for harmful functions. This means that organisations and their managers should carry out better standards of conduct at all levels of banking – and therefore any damages can be made accountable for, rather than being able to hide behind a large entity.

  • What changes must companies make?

Formal procedures must be put in place to identify and monitor people and structural changes. For example, when senior managers change, their roles and accountability must be clearly identified.

Another rule is that managers must be assessed annually to prove that they are fit and proper, including vetting results, competence, Regulatory References and Conduct Rule breaches.

Any senior managers and certified individuals must obtain and provide regulatory references over a 6-year period.

Conduct rules must be executed including regular training of impacted individuals, disciplinary investigations and support processed.

  • Will there be extra costs for companies?

Yes, there will be extra costs for firms and their HR departments to ensure that they are SMCR compliant, and this cost may be incurred in-house or passed onto clients. Whilst organisations can become SMCR ready by following instructions from the FCA, they can also source the help of SMCR consultants, which may incur a higher cost short-term, but provide excellent value in the longer run.

Crucially, there is also the conversation over the extra time and additional resources required to be SMCR compliant, which may add pressure to existing managers and HR staff.

  • What are the challengers to regulated firms?

Keeping up with new regulations may impact productivity for many regulated firms, with reference to the extra workload to be SMCR compliant. This may require the hiring of additional consultants and HR employees to manage the increased provisions.

Complications have emerged over determining who is a certified individual and whether one or multiple people can be held responsible for potentially harmful functions. This may lead to reluctance of senior managers to avoid proceeding with business for the potential risks to their position and reputation. There is additional pressure on senior managers to be held accountable for huge sums of revenue, whereby this previously fell at board-level.