Senior Managers and Certification Regime: Everything You Need to Know About SMCR

The financial services industry in the UK operates within a strict regulatory framework designed to ensure market integrity and consumer protection. In this context, the Senior Managers and Certification Regime (SMCR) is critical in encouraging individual accountability and cultivating a culture of ethical conduct within organisations.

The SMCR was implemented in 2016 to replace the former Approved Persons Regime (APR) and the Senior Insurance Managers Regime (SIMR) for insurance organisations. This new regime provides a better framework for recognising senior managers who are directly responsible for specific functions within a company. Furthermore, all employees must go through a certification procedure to demonstrate understanding of the relevant conduct rules and their responsibilities.

What are the key parts of SMCR?

This comprehensive framework operates through three key elements:

• Senior Managers Regime: This component focuses on assigning clear and defined responsibilities to senior managers. Statements of Responsibilities and Responsibilities Maps are critical documents that ensure the clear definition of individual roles and eliminate potential gaps or overlaps in oversight. Furthermore, senior managers are subject to a statutory duty of responsibility, which requires them to take the required steps to prevent regulatory breaches in their assigned areas.

• Certification Regime: Designed to ensure the fitness and propriety of individuals executing regulated activities, this regime requires companies to undergo extensive checks on their employees' qualifications, competence, and personal traits. Individuals who are deemed suitable are issued a certificate, which must be renewed annually to ensure continuous compliance.

• Conduct Rules: These universal rules, outlined in the FCA's Code of Conduct Handbook (COCON), apply to all personnel within an organisation, including Senior Managers, Certified Persons, and other employees. These norms establish a common foundation for ethical behaviour, ensuring that everyone in the organisation has responsibility for maintaining high standards of behaviour.

Who does senior managers and certification regime apply to?

While the Senior Managers Regime within the SMCR focuses on senior managers who have direct responsibility for specific functions, the regime's impact extends far beyond this select group.

Almost all employees who engage in financial services operations inside an organisation fall under the purview of the Certification Regime and are subject to high-level standards of conduct outlined in the FCA's Conduct Rules. This broad application demonstrates the SMCR's commitment to promoting ethical behaviour throughout the organisation.

The Conduct Rules themselves are divided into two categories:

• Individual Conduct Rules (ICRs): These rules apply to a wide range of employees, including all people involved in financial services activities, apart from ancillary personnel such as facility managers, personal assistants, and those performing entirely non-financial service tasks. ICRs apply to Non-Executive Directors (NEDs) as well.

• Senior Manager Conduct Rules (SMCRs): These standards are specifically designed for senior managers, including NEDs in senior positions, and impose a higher standard of accountability in line with their broader duties and influence within the organisation.

What is the aim of the senior managers and certification regime?

The SMCR seeks to decrease consumer harm and promote market integrity by:

• Individual accountability: Promotes personal responsibility for actions.
• Improved conduct: Increases ethical standards at all levels.
• Transparency ensures that roles and responsibilities are clearly allocated.

The SMCR promotes accountability, ethical behaviour, and openness, resulting in a safer and more trustworthy financial services sector.

How can an organisation comply with SMCR?

Compliance with the Senior Managers and Certification Regime (SMCR) is critical for financial services businesses. Here is a breakdown of the essential steps:

1. Define Senior Management Roles

• Statements of Responsibilities: Clearly identify each Senior Manager's specific areas of responsibilities.
• Responsibilities Map: Connect Statements of Responsibilities to ensure complete coverage and eliminate gaps or overlaps.

2. Secure Regulatory Approval

• Before assuming their jobs, all Senior Managers should obtain pre-approval from the relevant regulators.

3. Emphasise the Duty of Responsibility

• Ensure that Senior Managers understand their obligations and take proactive measures to prevent regulatory breaches in their domains.

4. Identify and certify staff

• Identify all Certified Persons who take material risks for the organisation.
• Conduct initial fit and proper assessments of all Certified Persons, followed by annual reassessments.

How does FCA assess the Fitness & Propriety of Senior Managers?

The Senior Managers and Certification Regime (SMCR) emphasises the importance of fit and proper individuals in high positions within the financial services sector. To maintain this level, the Financial Conduct Authority (FCA) performs fit and proper assessments on all Senior Managers before they begin their employment.

Three important variables influence whether an individual is considered fit and proper:

1. Honesty, Integrity, and Reputation: This refers to a candidate's moral character, ethical behaviour, and professional status.

2. Competence and Capability: The FCA evaluates a candidate's knowledge, skills, and experience. This guarantees that they have the essential capabilities to effectively carry out the allocated position and obligations.

3. Financial Soundness: While the FCA does not normally require extensive financial disclosures, it does assess an individual's financial condition to determine whether it may jeopardise their judgement or independence in fulfilling their duties. It is crucial to remember that a candidate's limited financial means may not inevitably disqualify them.

Additional Considerations for Businesses:

• When appointing Senior Managers or Certified Persons, organisations must get regulatory references from all previous employers over the last six years. This obligation also applies to Non-Executive Directors (NEDs) who are not considered Senior Managers.

• Businesses are required to keep records of any disciplinary actions or fit and proper determinations involving an individual for the previous six years.

• Businesses must avoid entering into agreements that may impair their capacity to comply with the FCA's disclosure requirements.

What is the importance of background checks in SMCR?

The wider adoption of SMCR has brought employee background checks to the forefront, and for good reason. Professional misconduct can result in FCA fines of hundreds of thousands, if not millions, of pounds, in addition to reputational harm and lost revenue.

Compliance is vital to business, but the demand for key talents means that organisations must hire and promote employees swiftly - and recruiting managers must have the procedures in place to conduct background checks as needed, promptly and efficiently.

Why Complygate?

At Complygate, we recognise that understanding the complexities of SMCR compliance can be difficult. That is why we provide tailored solutions to assist organisations in streamlining their screening operations and ensuring compliance with all regulatory standards.

Our team of SMCR specialists has vast expertise working with clients in the financial services area. We may assess your current screening process and advice on how to make it more efficient and successful.

Contact us today to find out how our comprehensive SMCR compliance solutions may help your company navigate the ever-changing regulatory landscape with confidence.