l SMCR: Individual Accountability into Focus | SMCR Compliance

SMCR puts individual accountability under spotlight

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In December 2019, the Senior Managers and Certification Regime (SMCR) was extended across financial services. The regime has already been in force for banks since March 2016 and the extension in December means it now applies to a further 60,000 entities, including asset managers and hedge funds. The SMCR puts a considerable emphasis on individual accountability at the senior level of regulated entities and is likely to lead to a seismic change in culture across the City.

The SMCR was introduced in the wake of a series of failings in financial services, including Libor and FX rigging. The Bank of England concluded that it needed to increase accountability, embed good governance and improve culture across financial services. One of the key changes introduced by the SMCR was to make senior managers personally accountable for areas of the business. The SMCR also introduced conduct rules for virtually all staff working in financial services and, for the first time, required firms to certify staff – those who may pose risk or harm to clients – as being ‘fit and proper’ to perform their roles.

Increasing accountability for senior managers

A recurring theme in previous financial scandals (such as LIBOR and FX rigging) was a lack of accountability at management level at financial institutions. The SMCR is designed to stop that by requiring firms to designate functions or areas of business to ‘senior managers’ and by making those senior managers take personal responsibility for the areas or functions designated to them.

If there are any regulatory failings within an area of the firm, the applicable senior manager will be held responsible for them if they are unable to show that they took the steps that could reasonably have been expected to prevent the failing from happening.

The SMCR is designed to avoid senior managers side-stepping their responsibilities by unreasonably delegating activities to more junior members of staff and requires senior managers to ensure that those to whom they delegate functions are appropriately trained to undertake them.

 

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