Response to FCA Extension of SM&CR

David Biggin, financial services regulation expert at PA Consulting Group

“The extension of the regime may be considered a “watered down” version of the Banking Senior Managers Regime. With fewer senior managers required to be nominated, there will be less regulatory scrutiny of the firms in scope of these rules when compared to their banking counterparts. The exception to this will be some of the larger Asset Managers, Securities Firms, Consumer Credit firms such as payday lenders and major brokers who will be caught by the “Enhanced Regime”. These firms will count themselves lucky to have avoided the regime when it was first introduced for banks and insurers.

“The certification element of the regime, which extends responsibilities to all employees who are ‘material risk takers’ places additional responsibility onto firms and is a form of self-regulation. Firms must ensure these key customer facing staff are complying with their obligations under the certification regime. The firms must annually declare the fitness and propriety of these material risk takers and may face penalties if a conduct breach arises as a result of customer facing staff.  For many senior executives, putting in place these procedures has not been enough, with many banks embarking on extensive cultural change programmes to both avoid regulatory fines and support a broader agenda to restore trust in financial services.

“Lessons can be learned from the implementation of the SM&CR at banks and insurers in 2016. The introduction of the regime for deposit takers and insurers raised the stakes for senior managers and these organisations have been operating for over a year under the new regime. In our experience the SM&CR provided firms with an opportunity to create a culture of risk management and compliance.  We also found that the HR function plays a critical role in supporting Firms and underpins long term compliance – not only because a number of major processes need to be altered, but also because Senior Managers themselves are increasingly looking to their employers to provide additional compensation, benefits or services such as access to legal advice when they take up a Senior Manager role.”