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A Guide to SM&CR

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SM&CR, the Senior Managers and Certification Regime is the Financial Conduct Authority’s (FCA) new regulatory framework and governance package applying to all FCA regulated financial firms in the UK. This includes companies providing investment services, such as asset managers, brokers and financial advisers, mortgage and insurance brokers and other consumer credit providers.

This new regime, replaces the previous equivalent, the Approved Persons Regime (APR). It was originally introduced in 2016 for banks, building societies and credit institutions and was extended to insurers in 2019, then finally to other firm types (so-called ‘solo-regulated firms’) in 2019. SM&CR has been designed and developed to transform financial compliance and accountability across UK financial institutions.

Background to SM&CR

This is as a result of the 2008 Financial Crisis in which compliance and accountability came under intense scrutiny as a result of some key failings such as the manipulation of the London Inter-Bank Offered Rate (LIBOR). The FCA’s SM&CR is a culture shift away from traditional compliance ‘box ticking’ and is an affirmative nod towards personal accountability and responsibility in UK finance. SM&CR’s implementation for solo-regulated firms began in December 2019.

It will need to be fully complied with by 9th December 2020, by which time firms of all types will need to have delivered the necessary training to all staff (except ancillary staff), not only Senior Managers and those carrying out Certified Functions. Our e-learning for SM&CR are designed for compliance for solo-regulated firms.

It is important to note that although most employees and people within financial firms will need to be certified, trained and accredited within their companies, senior managers will need to be approved by the FCA. in addition, the responsibilities of the senior managers must be explicitly set out in a document – the ‘Statement of Responsibilities,’ which is lodged with the FCA.

Who is Subject to SM&CR?

The SM&CR covers and applies to all FCA regulated firms in the UK and all their staff, apart from ancillary staff. Firms covered by the regime include ‘solo-regulated firms,’ which includes companies providing investment services, such as asset managers, brokers and financial advisers, mortgage and insurance brokers and consumer credit providers, amongst others set out by the FCA.

Although many solo-regulated firms subject to SM&CR may not yet be fully aware of their responsibilities, by 9th December 2020, they must all be fully compliant nonetheless. The FCA has three classifications of solo-regulated firms under SM&CR which dictate the precise nature of regulations in each case and the requirements of firms. These broad classifications are:

  • Core Firms
  • Enhanced Firms
  • Limited Scope Firms

Firms and their staff will need to understand the full responsibilities under SM&CR and this can be achieved through offering the necessary e-learning to all managers and staff within firms via our online SM&CR learning platform.

What Are Core Firms?

The rules and requirements of those under this category set the FCA’s baseline for requirements under the regime. There are specific Conduct Rules which Core Firms must follow and the SM&CR replaces the Approved Persons Regime and shifts the onus of responsibility onto financial firms themselves.

For Core Firms under SM&CR, senior managers must be approved by the FCA and have their responsibilities set out in a ‘Statement of Responsibilities.’ Furthermore, individuals performing certain important functions should be certified at least annually. Accountability and responsibility are at the very heart of the SM&CR regime, at all levels within the firm.

What Are Enhanced Firms?

Enhanced Firms under SM&CR are those which are of a more complex nature and which although subject to the Core Firm requirements of SM&CR, require more complex oversight. These companies will be subject to additional, more complex sets of regulations, in line with the nature and make up of such firms. The SM&CR has been designed by the FCA to be as tailored to a firm’s nature, make up and classification as possible and this is where some firms will be classified as ‘Enhanced.’

What Are Limited Scope Firms?

A number of firms have, under SM&CR reduced levels of obligations and these are termed ‘Limited Scope’ firms. Often, these are firms who benefit from other exemptions such as those that applied under the Approved Persons Regime. Limited Scope firms are those who conduct otherwise regulated activities as an ancillary business function. This often applies to the likes of retail outlets, car dealerships and others that offer finance deals to consumers that are purchasing goods.

What is the Purpose of SM&CR?

The Senior Managers and Certification Regime has accountability and personal responsibility at its core and is the essence of what the FCA are setting out to transform. The 2008 Financial Crisis emphasised some of the problems faced with regards to accountability and the FCA are now on the way to rectifying many of those pitfalls.

However, SM&CR also allows UK financial firms and institutions to take responsibility for many of their own functions, taking an ‘across the board’ approach.

Responsibility and accountability under SM&CR is also very reflective of the varying degrees of responsibility throughout a company. For example, senior managers, executives, directors and others in the most senior and often impactful positions must be directly authorised by the FCA, whereas others can now be appropriately accredited by the company itself on an annual basis.

Under the SM&CR, just as the senior management in any company have responsibility for top level business and functions within their company, so too should they when it comes to financial compliance. Hence, there are logical Conduct Rules, set out by the FCA which emphasise the trust, accountability and governance to be applied to senior managers and executives. The FCA aim for this to be part of a culture shift in compliance, benefiting all involved.

SM&CR: FCA Conduct Rules

The FCA have defined and determined specific sets of Conduct Rules under SM&CR which must be abided by all those working in the financial sector and across UK financial services. Managers and staff must be aware of these fundamental conduct rules. Some of the conduct rules under SM&CR are across the board and apply to all, whereas others are additional and will apply to senior managers. The conduct rules include:

  • Acting with honesty and integrity
  • Always acting and carrying out regulated activities with due care and diligence
  • Always being open and fully cooperative with the FCA
  • Treating all customers honestly and fairly
  • Observing all proper practices and standards of market conduct

For senior managers and executives, SM&CR’s conduct rules must be fully understood and complied with and are centred around increased responsibility and top-level accountability. Managers and staff (apart from ancillary staff should complete our e-learning to keep abreast of all requirements under SM&CR.)

E-Learning for SM&CR Compliance

SM&CR is a requirement for all FCA-authorised firms and companies and one which must be abided by and adhered to by all apart from ancillary staff. There is an explicit regulatory requirement for staff to be trained on the conduct rules and it is also vital that relevant staff understand the other aspects of SM&CR that apply to them personally.

To ensure your company, staff and all qualifying are fully SM&CR compliant, we have a variety of online e-learning packages and courses for all firms, staff and management levels. With more employees working from home than ever before and during these unprecedented times, our SM&CR web and app-based training solutions are the perfect and most efficient SM&CR training solution.

Our training and e-learning packages also allow you to ensure your staff and senior managers keep up to date with their annual SM&CR training requirements, staying compliant with these new rules at all times.