Senior Managers and Certification Regime Update
We’re now six months beyond the deadline for solo-regulated firms to have undertaken the first assessment of the fitness and propriety of their Certified Persons and the deadline for training of non-senior management staff on the Conduct Rules. SM&CR is now a part of the regime for almost all firms within financial services, and it’s a good time to reflect on what this means as we ease out of the pandemic and towards a step change in FCA regulation.
After the build-up to implementation, a complex task whatever the size and type of firm and despite the year and four months allowed for the final implementation of certification and conduct rules requirements, SM&CR has become, for the most part, just another part of compliance. This has led to some in the industry feeling that rather than ushering in wholesale changes within the industry, SM&CR hasn’t really changed anything.
There is certainly a view that the ‘stick’ elements of the Regime haven’t surfaced yet, with enforcement against individuals and firms who fall foul of the higher standard expected not yet in the news, and others have suggested that other FCA requirements – such as the updated vulnerable customer guidance – mean that firm cultures were already shifting sufficiently in the direction the SM&CR was designed to persuade.
But SM&CR has been in force for banking and insurance firms for longer – three and five years respectively – so can the experience of these firms highlight the Regime’s success and any lessons learned? The Regime was brought in to plug accountability gaps in the old Approved Persons Regime, through which it was possible that areas of business were not effectively overseen and individuals were not as fully responsible for actions and behaviours as under SM&CR. These gaps, it was felt, were in part to blame for the financial crisis. It is certainly the case that the imposition of fines on individuals has not increased since 2016 and there is a feeling that the standard of proof in these cases is prohibitively high. However, it could also be the case that the Regime has been successful in its aim to usher in a less easy-to-measure but definite change in culture. The possibility of Regulator action including fines and not being able to continue to work in the industry might mean that some of the practices that might have slipped under the radar before 2016 are now not worth doing.
That the Certification Regime requires firms to assess certified staff fitness to undertake their role will inevitably have an impact on both the firm – in how it views appropriate practice and behaviour - and on the individual – who needs to demonstrate annually competence, development and integrity.
This isn’t to say that the FCA won’t use enforcement where it thinks this is necessary. It has signalled in its latest Business Plan that it intends to use a more assertive approach to enforcement where it sees evidence of harms or breaches, and it will have the findings of two recent reviews – which concluded there are gaps and weaknesses in the FCA’s ability to understand and act – in mind where it does need to investigate. But it does appear that the SM&CR might have had a real-terms impact on lessening some behaviours and practices that might otherwise have led to customer harms.
Recent publications highlight, particularly where the Conduct Rules are concerned, that the FCA view is that expectations are not set-in-stone or rigid, but that the rules themselves are designed to be future-proof to developing standards within business and the industry itself. This is clear from the July publications of the Listing Rules Consultation, and a Discussion Paper on the development of diversity and inclusion in the sector, which broach the previously unclear topic of non-financial misconduct. This is an area of increasing focus for the FCA, which has confirmed that harassment, bullying and discrimination certainly must be taken into account for fitness and propriety assessments, but importantly might also result in a breach of the Conduct Rules.
Effective, regular, training for all employees to whom one or both tiers of the Conduct Rules applies is key for compliance with the SM&CR. Training provided must be comprehensive – it must cover each of the conduct rules, it must be engaging to embed learning, and it should set out clear scenarios so that staff can understand how the rules might apply in practice. Training should present the higher standard that is expected through the Conduct Rules, rather than explaining how current practices fit into the rules.
We offer two online Conduct Rules courses, which allow Senior Managers and Certification and all other staff to access and complete the training at their own convenience, ideal for those who want to complete the training in their own time, and to come back to it to refresh later on. They provide clear and comprehensive training in the Rules, including a mix of videos, small amounts of text and plenty of scenarios to demonstrate how the rules apply practically.
For large groups, we can offer a simplified enrolment service and pricing, simply email Robert.firstname.lastname@example.org.