SMCR: The Senior Managers and Certification Regime

SMCR, the Senior Managers and Certification Regime, has been brought in by The Financial Conduct Authority (FCA) with an eye on the need to reform and improve the culture within UK financial compliance, with firms that qualify having to complete the relevant training, available in the form of e-learning (more information about SMCR and e-learning for SMCR). Over previous years, there has been a strong sense that ‘compliance’ when it came to finance involved a lot of blame and even more box ticking unlike many other industries.

Since the 2008 Financial Crisis, in which there was significant manipulation of LIBOR (the London Inter-Bank Offered Rate), one of the most influential and important interest rates in finance. The SMCR is a large part of the moves that have been made and are still being made by the FCA to change the entire culture of responsibility and blame within the UK financial sector.

SMCR in the UK was originally introduced in December 2016, applying to a limited number of firms. It has come into effect for all solo-regulated firms as of 9th December 2019 and must be fully implemented by 9th December 2020.

SMCR – Changing What Financial Compliance Means

For many companies in the past, ‘compliance’ as a concept used to revolve around a single person or a small number of people who would simply have to ‘deal’ with all things that fell into the remit of compliance. However, this meant that any degree of blame and accountability ended up with the compliance person or department and no one would truly be held accountable.

There was always a sense of people being unsure when it came to what compliance in finance actually meant. The 2008 Financial Crisis highlighted the problem of no accountability withing financial companies and thus, SMCR has been born and introduced. The Senior Managers and Certification Regime replaces the Approved Persons Regime (APR).

The FCA has therefore published detailed guidance and industry practices for all solo-regulated firms. This means that all FCA-authorised financial companies in the UK must comply with SMCR throughout everything they do and all activities they conduct.

Who Does SMCR Apply To?

The SMCR applies to all solo-regulated firms in the UK and applies to all staff and employees within FCA-authorised UK firms. SMCR does not apply to UK banks, who are currently subject to the Senior Managers Regime (SMR).

This regime does however, for all qualifying financial firms, cover all staff within the company apart from ancillary staff, who include:

  • Catering Staff
  • Cleaners
  • Security Staff
  • Receptionists
  • Porters

SMCR does however, apply to a vast number of firms in the UK, all of which are authorised by the FCA to conduct financial activities. The companies who fall into the remit of the SMCR will have customer-facing entities. They will also likely have staff that will be advising customers and who will therefore be in a position that, with ‘bad’ advice, could cause significant harm to both clients and customers.

Moreover, should bad advice be provided to clients and customers, there could be significant damage to the UK’s financial sector. This is another concern of the FCA’s in an industry which has been viewed over the years by the public and the government at times as ‘distrustful’ in one way or another.

SMCR for Solo-Regulated Firms

Under SMCR, solo-regulated firms who need to comply include (but are not limited to):

  • Investment managers
  • Mortgage brokers (for all mortgages, including first and second charge mortgages)
  • Insurance brokers
  • Consumer product providers
  • Pension transfer specialists
  • Retail investment advisers

Many firms have been rolling out the necessary changes to their companies to comply with SMCR.

However, there are also quite a lot of companies who may not yet realise that they need to comply at all. For example, in the case of some small car dealerships offering forms of consumer credit and finance, they may believe that SMCR only applies to ‘bigger’ firms and companies. However, as with the otherwise ‘bigger’ companies, smaller firms that qualify must still comply with SMCR.

Types of Firms Under SMCR

The FCA has defined three types of firms under SMCR and all qualifying firms will fall into one of the following three types of firm:

Core Firms – This is the category which most firms come under with regards to SMCR. The requirements, rules and governance as a core firm is the baseline and the FCA’s benchmark for requirements and standards for firms under this regime. There are specific conduct rules which must be followed by key staff and this will apply to all firms, core or otherwise.

Enhanced Firms – For some firms, of a more complex nature and structure, there will need to be more complex oversight and governance to match the enhanced nature of such companies and their activities.

Limited Scope Firms – A smaller number of financial companies in the UK will have reduced levels of obligations and are classed as ‘limited scope.’ These companies will typically be those who already benefit from exemptions under the existing Approved Persons Regime (APR) that the SMCR replaces.

Companies that currently fall under the FCA’s Appointed Representative (AR) Regime remain unaffected by SMCR and will continue to be covered by their obligations and requirements as an AR.

What Does SMCR Do?

One of the key elements at the core of SMCR is making clear who is responsible within financial firms in the UK and the larger financial sector in the UK, one of the largest and most profitable sectors in the entire country. SMCR focuses on senior managers within firms and sets out specific conduct rules which will need to be learned and followed.

As the FCA see it, just as senior management, such as chief executives, directors and non-executive directors have increased levels of responsibility when it comes to the running of the company, so too should this be the case when it comes to compliance and accountability. Senior management take on an increased level of risk in terms of the running of the company and this should therefore also be the case for compliance, accountability and responsibility.

SMCR is designed to be a culture shift away from the old-fashioned ‘compliance culture.’ It aims to improve market integrity in finance and in the wider financial sector, whilst reducing the potential for harm to consumers, all the meantime, raising standards for those working in the sector.