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MERJE Compliance, Risk Management, Contract...

The last few years have seen many regulatory changes in UK businesses, including GDPR and PSD2, which have required financial institutions of all sizes to ensure that their Compliance and Risk Management functions are as efficient and skilled as possible.

One regulatory change that previously only impacted selected financial institutions is the Senior Managers & Certification Regime (SM&CR, also known as SMCR) which has been in place since March 2016 and was only applicable to Banks, PRA Investment Firms and some Insurers. However, the regulations, which focus on accountability and liability of Senior Management, will be expanded in scope to be applicable to all FCA-regulated organisations as of December 2019.

Once the new changes take effect, firms have 12 months to ensure they are compliant. We have spoken to an SM&CR Consultant and a Head of Compliance to understand how the preparations can impact an organisation’s processes and structure – but first: What is SM&CR?

A very brief outline of SM&CR

The Financial Conduct Authority (FCA) states:

“The aim of the new regime is to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence. As part of this, the SM&CR aims to:

  • Encourage a culture of staff at all levels taking personal responsibility for their actions.

  • Make sure firms and staff clearly understand and can demonstrate where responsibility lies.”

The FCA splits SM&CR into three parts:

  1. Five ‘Conduct Rules’ that individuals must adhere to.

  2. Clearly set out responsibilities for approved and registered Senior Managers, who will be personally held to account if something in their area were to go wrong.

  3. The Certification Regime for people not covered by the Senior Managers Regime, but whose jobs may significantly impact customers or other firms.

In order for these regulatory changes to take effect, substantial preparations and process alterations are needed. How did organisations prepare for the initial rollout? How has SM&CR affected their Compliance function? And how do firms that are impacted by the upcoming expansion deal with the new regulations?


Insight from a Senior Managers and Certification Regime Consultant

We asked Michelle Weddell, a Senior Managers and Certification Regime Consultant who has advised a number of leading Financial Services organisations on SM&CR business readiness, for her insight on the regulations and how best to prepare for them.

What is the change to SM&CR hoping to achieve?          

Trust and accountability at the most senior level, and also to improve public trust in the industry following the 2008 financial crisis.

Who should oversee the process?

HR and Compliance are key stakeholders in the project and in my experience play an important part in oversight of SM&CR implementation. Compliance due to the regulatory aspects, and HR due to the culture aspects and the wider impact on people and processes.

How will it impact the way organisations do business

Although SM&CR introduces a number of new regulatory obligations and responsibilities impacting governance, people, and process that will affect the majority of colleagues to varying extents, SM&CR does not fundamentally alter the way the business operates. Businesses should continue as normal and people’s actual day-to-day roles should not change significantly.

How do you get Senior Management buy-in?

Communication and tone from the top is key!

In my view the most important aspect is Senior Management buy-in. Without a clear understanding of the changes and expectations of them as leaders, it is very difficult to disseminate information and get subsequent buy-in of the changes from the wider business.

Buy-in is achieved with the early engagement of the Senior Managers to educate them on the changes. With their support, messages to the wider business will be better understood and received.

What would you say are the key areas to get right?

There are a few important areas which need to be adequately addressed to ensure the transition to SM&CR is successful.

First is communication, training and buy-in. This ensures adequate time is spent in developing a well-rounded training and communication plan designed to support the different groups of colleagues impacted by the changes

For example, documenting changes to processes and procedures is a central element of the project’s scope, but the redesign alone is not enough. Changes need to be fully understood by those impacted to ensure a well implemented SM&CR.

Second is culture. Is the company ready to fit the new culture of accountability? Establishing clear remits and accountability is a measure to check firms are ready for the changes.

Third is governance and ensuring a well-defined governance and oversight structure is in place. This should not mean reinventing the wheel, just being familiar with the changes as they may impact on identifying and assessing risks.

And finally Management Information (MI). In reality each Senior Manager will need to ensure they have the right MI in place to do their job effectively. Keeping oversight of the changes occurring throughout is key.

What were the typical push-backs you received ?

Push-backs I have generally encountered include a lack of buy-in of the Certificate Regime and resistance against formally signing up to changes, as well as a lack of buy-in to new remits caused by the process changes – largely due to an already limited head-count so additional responsibilities were considered an extra burden.

Often there are hurdles to overcome when attempting to reach a final agreement on responsibilities at Senior Manager-level. A lack of clear internal communications can also lead to push-back when the process changes roll-out to the wider company.

Insight from a Head of Compliance

We asked a Head of Compliance in the Insurance and Consumer Credit industry for his experiences in preparing for the forthcoming SM&CR expansion.

What actions have you taken to ensure SM&CR compliance in your business?

The responsibilities have been mapped and consideration has been given to both the additional resource and competency of current senior individuals.

What have been the key challenges and how have you overcome these?

Having defined, mapped and prescribed responsibilities, there has had to be some movement on Senior Managers’ remits. This has resulted in a shift in departmental responsibilities including staff movement and overall restructure.

How much external support have you required to meet these regulatory standards?

None, with the exception of recruitment.

In regards to ‘Good Practice’ and ‘Poor Practice’ findings, did this create any further insight or regulatory change programmes which needed implementing or addressing?

No, as a firm adopting and embracing rules and consumer outcomes there was no additional requirements.

What is the most significant change your business has made?

For directly authorised firms who are secondary intermediaries, (i.e. their core business is non-regulatory such as car dealers or travel agents) there can be a difficulty in defining the SMF ownership by individuals. This is because Senior Managers who currently may not have an approved person status and predominantly deal in non-regulated activity may not be in a position to become approved under SM&CR either by choice or by failing the fitness and proprietary requirements.

A number of these types of firms are therefore considering options such as becoming an Appointed Representative to allow the Principal firm to establish the appropriate SM&CR structure or are having to consider to replace some Senior Management individuals.

Finding the talent to implement the changes

MERJE has been working alongside a number of our Clients to support the introduction and deployment of the regulatory expectations around SM&CR. We have found our Interim search has been beneficial to our Clients as this has enabled our Clients to bring in subject matter expertise to assess, review and confirm reporting lines and accountabilities and manage any changes required. 

MERJE has also worked closely with our Clients where the implementation of SM&CR has identified clear gaps which need filling with the recruitment of SMF approved, or soon to be approved, individuals for permanent hires.

We would be happy to discuss any scenarios where our advice and support could help achieve the objectives of this framework. Please contact our team on 0203 637 1600 (London and the South) or 0161 883 2740 (North West and rest of UK), or email info@merje.com.