A Guide to SMCR- Senior Managers and Certification Regime

Financial organisations such as banks and building societies launched the Senior Managers and Certification Regime (SMCR) in 2016 as a successor for the Approved Persons Regime (APR). With the recent extension of this regulation to encompass all organisations regulated by the FCA (Financial Conduct Authority), this blog covers frequently asked SMCR compliance questions. Additionally, it also explores methods to protect the organisation against employee misconduct, potential financial fines, and reputational loss.

What is SMCR (Senior Managers and Certification Regime)?

The FCA SMCR, or Senior Managers and Certification Regime, is a regulatory framework in the UK's financial services sector. Its principal purpose is to enforce personal responsibility among senior managers working in financial services organisations. Simultaneously, it tries to enhance the behaviour of all employees within these organisations while mitigating potential harm to consumers.

The SMCR is a key regulatory change that has had a considerable impact on the financial services industry. It has been critical in raising the calibre of senior managers and creating strong ethical standards. Senior managers are individually held accountable for their actions and decisions under the SMCR, promoting a culture of accountability and liability inside financial services businesses.

Who does the SMCR apply to?

The SMCR applies to all organisations regulated by the Financial Conduct Authority (FCA), which includes, but is not limited to, banks, building societies, credit unions, investment managers, insurance brokers, and consumer credit providers.

The SMCR also applies to certain employees of these businesses. These individuals are referred to as senior managers and Certification Staff (CS).

Senior managers are those who have substantial control over how a company is managed. They are in charge of developing the business's strategy and making decisions that may have a significant influence on the organisation or its consumers.

Individuals with substantial responsibility for managing a certain aspect of the business's operations are classified as Certification Staff. They are in charge of ensuring that the business's regulatory requirements are met and that its consumers are safeguarded.

Here are some examples of senior management and certification staff:

• CEO (Chief Executive Officer)
• CFO (Chief Financial Officer)
• Head of Compliance
• Underwriter
• Claims Manager
• Head of Risk
• Head of Sales
• Head of Trading
• Branch Manager

What does SMCR include?

The SMCR has 3 key parts:

• The Senior Managers Regime
  The first component of SMCR, the Senior Managers Regime, requires workers in senior management positions to get permission from the FCA or PRA before beginning work and to undergo yearly certification. Furthermore, the business is expected to provide each senior management with a 'statement of duty' that clearly specifies their roles and eliminates any doubt. According to FCA standards, the firm must ensure that its Senior Manager is physically and mentally competent to perform their duties. The FCA strongly recommends various checks, including as criminal background checks, directorship checks, credit checks, and other comparable processes, because they are judged helpful and necessary.
• The Certification Regime
  The Certification Regime is a collection of standards that apply to employees who have the potential to cause serious harm to the company or its customers. These individuals are not required to get FCA or PRA licences, but their employers must complete suitability assessments when they commence their positions and at least once a year thereafter. While the SMCR does not require certified staff to undergo criminal record checks, it is recommended that they do so as a precautionary step.
• The Conduct Rules
  The FCA's conduct rules are a new set of binding requirements that describe the core values for which individuals can be held accountable. They apply to all workers and serve the dual purpose of defining a company's culture, conventions, and standards while also promoting positive conduct. These rules are separated into two categories: general rules for all employees and rules particular for senior management. Their key goals are to increase individual accountability and raise communal understanding of behavioural issues.

Tier 1- Individual Employees

• You must act with honesty and sincerity.
• You must exercise caution, competence, and diligence.
• You must cooperate transparently and honestly with regulatory bodies such as the FCA, the PRA, and others.
• You must prioritise your consumers' needs and serve them fairly.
• You must follow acceptable market conduct guidelines.

Tier 2- Conduct Rules for Senior Managers

• You must ensure effective control and oversight of the company's operations under your responsibility and take reasonable steps to achieve this.
• You must take reasonable steps to ensure that the company's operations, for which you are responsible, comply to the regulatory system's standards and regulations.
• You must undertake reasonable measures to delegate your responsibilities to competent individuals and ensure that delegated tasks are adequately executed.
• You must timely and adequately disclose any information that the FCA or PRA would reasonably expect to be made aware of.

Why has SMCR been introduced?

Following the financial crisis, the UK created the Senior Managers and Certification Regime (SMCR) in response to concerns about a lack of individual responsibility and governance challenges. Initially enforced in 2016 for banks, insurers, and broker-dealers, it was later extended to other solo-regulated firms by 2018.

The necessity for companies to produce a statement of responsibility outlining numerous senior management functions (SMFs) embracing many parts of a firm's operations is at the heart of SMCR. Senior managers hold personal responsibility for the areas outlined in this statement.

SMCR's primary objective is to instil a culture of accountability and drive significant behavioural changes within financial organisations. The Financial Conduct Authority (FCA) underscores that SMCR should not be treated as an isolated compliance initiative but rather as an opportunity to establish and uphold high standards of governance.

Why is background screening important under SMCR?

Under SMCR, senior managers are personally responsible for the areas outlined in their respective positions of responsibility. Individual responsibility at this level needs an in-depth look of an individual's past to verify that they are fit and appropriate for their different jobs. As a result, background screening becomes an important tool when evaluating the credentials, integrity, and behaviour of persons who will hold positions of substantial influence.

The Financial Conduct Authority (FCA), which regulates SMCR, understands the need of thorough background screening in maintaining trust and confidence in the financial industry. It helps to keep people with questionable histories or unethical actions out of key positions. Furthermore, it is consistent with SMCR's overarching goal of fostering a culture of accountability and good governance standards. Background screening, it is safe to say, functions as a proactive tool to defend the industry's image and integrity by ensuring that persons in key positions satisfy the strict standards set by the regime.

Next Steps

Our SMCR checks, which are supported by cutting-edge technology, aim to make the process easier for you. You can easily begin background screening, track progress, and make educated judgements on your senior managers using our user-friendly platform. Complygate supports the Financial Conduct Authority's (FCA) goal of maintaining trust and confidence in the financial industry by providing you with the tools you need to guarantee your top executives are qualified for their positions.

Click here to learn more about our SMCR solutions and take the first step towards a more secure, safe, and productive workplace. Complygate is your SMCR partner for a more seamless trip.