Final Stage Troubleshooting for SM&CR

With just over two weeks to go until commencement, solo-regulated firms should be finalising their preparations for the start of the Senior Managers and Certification Regime. Firms can use the FCA’s checklist to make sure they’re on the right track, but we’ve had a number of queries from firms who are struggling with some of the finer points of the Regime, so this week we’ll take a look at final stage troubleshooting.

Statement of Responsibilities

One of the most common topics when it comes to SMCR woes is the Statement of Responsibilities. Every Senior Manager must have one. It must be a single document, and clearly set out the Senior Manager’s roles and responsibilities. It’s helpful to know what the FCA wants out of them, and ultimately it should be able to help the regulator understand who is accountable for what. Plenty of firms look to a Senior Manager’s job description as the basis of the document, but this is often the first mistake. Statements of Responsibilities should set out what is done, not how, so descriptions of skills required, or how the responsibilities should be undertaken is not what is needed. The focus should be on what the Senior Manager is accountable for.

The document must be self-contained; that is, it must be a single document, and not cross-refer to other documentation. If it does, then it is likely expanding beyond what it needs to be. It only needs to contain enough information to describe what the Senior Manager is accountable and responsible for, and even then it does not need to go into unnecessary detail. It should include a brief description of accountabilities – the FCA recommend no more than 300 words per responsibility, any prescribed responsibilities, and it should note whether any functions or responsibilities are shared.

And finally, it is important to involve the Senior Manager themselves in the drafting. Each Senior Manager will be ultimately accountable for the responsibilities and accountabilities outlined in the document, so they should be an integral part of its creation. A template Statement of Responsibilities is available through our website.

Conduct Rules Breaches

In our experience, an overlooked element of the SMCR is knock-on effects from some of the requirements of the Conduct Rules. Most firms likely know that they will need to report any breaches of the Conduct Rules that result in disciplinary action – once a year for most staff, and within seven days for Senior Managers – but has your firm reviewed its disciplinary procedures in preparation?

Given the potential for serious consequences – FCA action against Senior Managers and the requirement to provide details in regulatory references for six years – for as much as the issue of a formal written warning, firms should consider a review of how their disciplinary processes are used in practice. If formal written warnings are issued for relatively minor matters, this could have a disproportionate effect on the individual’s career.

Embedding a Positive Culture

And finally, although it won’t appear on any checklists, embedding a positive culture is what the SMCR is all about. Once the dust has settled, deadlines have been met, and the new Regime is underway, what will really matter in practice is whether the Regime is used as a constructive and positive measure. The FCA are keen to point out that there are clear benefits to healthy culture in financial services, not least increased consumer trust, well-motivated staff and low turnover, leading to increases in skills and even in profit. If the FCA are right, firms that embrace a positive culture are less likely to see misconduct, and could experience additional drive towards innovation and growth.

For most, the SMCR is entirely new, and some apprehension about what the changes mean for individuals and the firm – both in the immediate and longer terms – is understandable, particularly for Senior Management. The additional accountability and sense of responsibility may lead some to initially micro-manage their areas, seeking reassurance that they are compliant and less at risk of breaches. Firms can work with their Senior Managers, ensuring that they are well supported towards taking a balanced approach, recognising that it may take some time to figure out what a proportional response means for the firm. Comprehensive training helps - a clear idea about what accountability, the duty of responsibility, and the meaning of ‘reasonable steps’ in the context of their role can go a long way in alleviating these initial concerns.

To ease the burden, and help firms become SMCR ready, we have a range of resources, including our Guide for solo-regulated firms, a fit and proper assessment template, a statement of responsibilities template, and two different conduct rules training courses designed to meet the training requirement. All of our SM&CR resources are available at our website.

#SeniorManagersandCertificationRegime #FCA #StatementofResponsibility #SoR #PrescribedResponsibility #ConductRules #processes