Nov 19 – The gift of SM&CR

With the FCA’s Senior Manager & Certification Regime (SM&CR) due to be extended across financial services businesses from 9 December 2019, I would have expected more noise from small to medium sized advice firms complaining about the complexity.  It makes me wonder if firms have actually recognised the need to do something.  All firms should have considered the implications of the Senior Managers element of the new regime and put in place any required documentation by 9 December.  In addition they must have trained all their staff on the Conduct Rules.  Technically this is new regulation and there are forms to complete, but for most mortgage advice firms it will be formalising the real behaviour and culture which has evolved since statutory regulation came into force.  Good firms have the customer at their heart and we are a market sector that innovates and adapts to not only the different and changing regulatory demands but most importantly to its customers’ needs.  So perhaps not much to do for some.

The new regime provides an opportunity for Intermediary firms to review their culture and governance, confirming that those who make decisions take responsibility for those decisions.  Time to reinforce their own culture and values for staff and helping them understand how their conduct impacts on ensuring that the business delivers good customer outcomes and demonstrates that they consistently encourage open internal discussion.  It is fundamentally about bringing to life the requirements to act with integrity, with due skill, care and diligence and pay due regard to customer interests, whilst observing proper standards of market conduct.  The FCA is hoping that firms develop discussions which help their teams understand what these rules mean in how they each do their jobs.

The FCA are clear on their expectations of regulated firms and to coin a cliché ‘it’s a journey not a destination’ and for those working through these changes and considering their implementation that must be the focus.  SM&CR is a regime which creates clear accountability, responsibility and sets expectation for good conduct throughout the firms’ business activities whether a sole trader or firm with employees.  Not just a bureaucratic or HR exercise, but one where the company establishes what it is there to do and how they do it.

The FCA website provides resources that all firms must consider as part of their preparations for implementation and examples of the documents required.  The FCA guide for firms explains how the new regime applies to the different firm categories, Enhanced, Core and Limited scope, providing scenarios to help translate the regimes requirements into situations that firms can relate to in their businesses.  The solo-regulated guide takes firms through the allocation of responsibility for its Senior Managers, explaining which senior management functions must be allocated by each firm and those senior management functions that are required because of other FCA Handbook rules i.e. Money Laundering reporting officer, where applicable.

The Certification Regime is a new set of rules set out in SYSC 27 of the FCA Handbook.  Some staff in the new Certification Regime may previously have been approved by the FCA.  Instead of the FCA approving all senior individuals it is now the firm’s responsibility to make sure that their staff are fit and proper.  So fewer people will be approved by the FCA with the firm principal now taking that responsibility and accountability.  The Certification Regime applies where a firm has ‘employees’ that are performing a certain certification function.  If you are a sole trader with no-one else in your business then the FCA have confirmed that the certification regime won’t apply.  For firms with employees then it is critical that they take time to fully understand how to identify the employees that the certification regime will apply to.  In simple terms these are individual who need a qualification to do their job.  Firms have until 9 December 2020 to complete the exercise for existing employees.

SM&CR introduces new Conduct rules for Senior Management and all employees of a regulated firm, these rules are part of the overall FCA focus on good culture and behaviour in firms top down and bottom up.  There are two tiers of conduct rules, first tier – Individual Conduct Rules and second tier – Senior Manager Conduct Rules.  These apply immediately to all Senior Managers and Certified staff and firms are required to ensure that all individuals are aware of the conduct rules that they are subject to.  All employees will need to understand what behaviour is required to ensure that where something goes wrong they have acted in a reasonable way and not deliberately taken poor decisions to the detriment of customers or the market sector.

There is a significant emphasis on ‘good culture’ in the new regime and the expectation that Senior Managers influencing the firm make sound, reasoned and effective decisions when operating the business.  Firms must take time to consider all the new rules introduced within the SM&CR and ensure that their systems and controls, business culture and importantly its staff have the appropriate awareness to demonstrate compliance with the new regime from 9th December 2019.

The Association of Mortgage Intermediaries is publishing a range of guides to help members of the trade body with what they should be considering and where to find resources to help.  Firms now need to start now to be ready in time.

Robert Sinclair, AMI
October 2019