The SMCR, which involves a shift towards individuals being held personally accountable for the area of the business they manage and an obligation on firms to police its employees, was first introduced into the banking sector in March 2016 and is now being extended to all FCA solo-regulated firms from 9 December.
Brokers and MGAs have so far been relatively lightly regulated; however firms will now have an obligation to ensure its employees comply with the FCA mandated Conduct Rules (CR) and of certifying that employees are fit and proper (F&P) to carry out their job function.
The FCA recently confirmed it has opened investigations into one firm and six individuals for non-financial misconduct following the introduction of the SMCR into the banking sector. With average enforcement fines in 2017/2018 of £90k for individuals and substantially higher for firms, there is a strong incentive to take SMCR obligations seriously.
Firms could face upheaval as they get to grips with the obligations of the new regime; the introduction of SMCR heralds a brave new world of regulation for brokers, MGAs and their employees. For a sector of the market that has until now enjoyed relatively light touch regulation, getting to grips with detailed requirements such as statements of responsibility, annual fit and proper certification and regulatory references will doubtless prove a significant challenge, particularly for those with limited internal compliance, HR and legal resources to draw on.
Coupled with John Neal’s promise to clean up Lloyds and the FCA’s clear messages about non-financial misconduct, standards of behaviour across some areas of the intermediary market will need to improve quickly at the risk of personal public censure, fines or even in some cases bans.
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