Senior Manager Certification Regime

The Senior Manager and Certifications Regime (SMCR) was introduced to Banks with effect from 7 March 2016 and other financial service firms caught by the regime on 9 December 2019.

SMCR replaces the old Approved Persons Regime and aims to hold individuals accountable through the clear allocation of responsibilities. Failure to take reasonable steps or a “Duty of Responsibility” could lead to criminal sanctions being imposed at company and individual levels.

Expectations on how you apply the regime will depend on the type of firm you are considered to be, this is either Enhanced, Core or Limited Scope. Once you know this, it’ll be clear how you need to a apply the different elements of the regime.

SMCR consists of a three tier structure:

1) Senior Manager Regime

Senior Managers are required to be approved by the FCA. These will typically consist of your Partners/Executives, certain Non-Executive Directors, Control Functions with compliance oversight , staff with overall responsibility for certain functions and, in some instances overseas staff with an influence on a UK committee.

Senior Managers need to be allocated responsibilities in 3 ways; 1) through the allocation of FCA prescribed “Senior Management Functions” (SMF’s) 2) through the allocation of FCA “Prescribed Responsibilities” and 3) through the allocation of “Overall Responsibilities”. All three of these responsibilities need to be shown, along with individual’s names and basic details, in what is called a “Responsibilities Map”. This is a single document describing the firm’s management and governance. While only compulsory for Enhanced firms, it’s an exceptionally useful document, so most Core firms will have one anyway. In addition to the Responsibilities Map, Senior Managers are required to produce a Statement of Responsibilities (SOR), which they need to attest to, as part of the application.

Finally, all Senior Managers will need to be assessed annually by the business as “Fit and Proper”. This is done by assessing each individual’s 1) Honesty, integrity and reputation 2) Competence and Capability and 3) Financial Soundness.

2) Certification Regime

Certified Persons (CP’s) will be those that are seen to be material risk takers, proprietary traders, staff who require qualifications to perform their role, those with significant management functions, managers of certification employees and certain other significant influence functions that aren’t covered by the SMR.

These individuals won’t be required to be FCA approved; however, they are required to be certified by the business for the function/s they are to perform, on an annual basis.

Certification of individuals requires the business to annually assess whether they are “Fit and Proper” in the same way they do for Senior Managers.

3) Code of Conduct

The new Code of Conduct (CoC) rules replace the “Statements of Principle” for Approved Persons, but will be extended to cover a larger group of individuals through a tiered approach.

The purpose of these new conduct rules is intended to help shape the culture of firms and promote positive behaviours. Of course, they are also there to act as a deterrent for any misconduct.

There are two tiers to the CoC rules; Tier 1 applies to all staff, with the exception of any ancillary staff. It should be noted however that most firms apply the Tier 1 CoC rules to all staff on the basis that the exclusion of some can create an increased administrative burden and, the rules themselves aren’t unreasonable, so you’d expect all staff to adhere to them as part of general good practice. The Tier 2 rules apply only to Senior Managers.

As an FCA regulated firm you should have:

  • A responsibilities map (compulsory for Enhanced Firms)
  • Identified all SMF holders
  • Statements of responsibility for all Senior Managers
  • Identified who your Certified Persons are
  • Allocated all three categories of responsibilities/functions to individuals
  • Determined how you are going to assess individuals as fit and proper
  • A process in place approve staff as Fit & Proper
  • An appropriate Governance/Decision making framework in place
  • Clear Board Committee TOR’s and composition
  •  Ensure sufficient training is in place
  • A process in place to deal with the handover requirements (if they apply to you)
  • An ability to deal with regulatory references
  • Appropriate employment contracts, settlement agreements and other employment related documents.
  • SMCR tie into HR related policies and processes such as your evaluation system, job descriptions, disciplinary policy, whistleblowing policy etc.
  • Appropriate record keeping

On the basis that SMCR has a high dependence on Human Resources, Benchability assisted a number of clients with their implementation and continue to support them on an ongoing basis. We are well positioned to help you with all of the above. A popular product has been the complete outsourcing of the SMCR pack preparation, as part of the SMCR Committee review of staff as Fit & Proper.

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