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SMCR Webinar – Are you doing it right?

Just over a year ago, solo-regulated firms came within the scope of the Senior Managers and Certification Regime (SMCR). Planning had been in the works for a while prior to the implementation date in December 2019, with a final extension to the transition period for some elements ending on 31 March 2021. With a full year under our belts since final implementation, now is a good time to take stock, and review compliance with the new Regime.

Given that SMCR goes so much further than the Approved Persons Regime, a review of implementation has to look beyond documentation and process, and make sure that the key aims of the FCA are being met in practice. A healthy culture, with integrity at its core, and clear lines of accountability, are two key areas for assessment. Under typical measurement methodologies, firms of all sizes would be forgiven for thinking that assessing how well the firm has done in creating and demonstrating a healthy culture is a compliance nightmare.

Supporting a healthy culture is no longer an optional extra. The regulators understand that at the root of most breaches lies poor behaviour and culture leading to measurable failings and customer harm. The SMCR steps in here to support firms prioritising good behaviour. Rather than an optional benefit, it becomes business as usual.

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A review of culture, particularly where firms may not be used to a more qualitative approach, can be difficult to get your head around. What do you measure, and how? This will depend on the business and the size of the firm, but in general key areas for audit include values, strategy, company purpose, recruitment, tone from the top, conduct at all levels of the firm, and remuneration. Helpfully, many of these topics have been the subject of FCA publications, speeches and news items, so building a framework for measurement is relatively straightforward.

Measurements can include how well your staff understand the values and purpose of the firm, what this means in practice – for example how the values should be demonstrated during day to day work – and how the values influence strategy and tone from the top. Being able to draw direct lines between the values and actions of the firm, and the aims of SMCR will go a long way to demonstrating compliance with the regime.

Remuneration is a key metric. The FCA have previously published a paper setting out their expectations in this area, with the underlying drive being that reward should encourage good quality outcomes, and support the firm’s values, rather than solely its profits.

Some aspects of SMCR are more mundane and easier to measure. By now, the requirement for Statements of Responsibilities are well known – but checking that every Senior Manager has one isn’t enough. Reviews should make sure that each SoR is up to date, summarises the individual’s role and responsibilities, and is self-contained – this document should be readable in isolation from others and easily understood. Checking that HR policies and procedures are in place for the obtaining and giving of regulatory references are similarly relatively easy to review.

Two years on from introduction, and – especially given recent events – understanding the Regime’s relative successes and challenges can feel elusive. What impact has it made, in real terms, on firms, let alone on the market? The good news is that evaluations conducted to date show that the SMCR does meet the main aims in practice fairly well.

The 2020 PRA evaluation of the 2016 implementation for banking firms found that the Regime does in fact make it easier for firms and the regulator to hold individuals to account, with a very large majority of firms (95%) saying that the SMCR was having a positive effect on individual behavior.

The evaluation also drew strong links between accountability and good decision-making, and strong internal processes, with evidence that firms have been able to use the regime to good effect for their own purposes. Examples given include added clarity and transparency in processes, clear and practical handovers for senior staff, and an underlying change in culture connected to the unpicking of the idea of a fine simply being the cost of doing business.

The evaluation concludes by highlighting the need to ensure the continued embedding of the regime – stopping at implementation is not enough. The PRA also noted some challenges, including increased risk aversion, escalation of decisions above the appropriate level, and difficulties with understanding some of the expectations, particularly around documentation and the regulator’s expectations.

Our webinar on SMCR – Are you doing it right? will be available in the coming weeks. This webinar is designed to give your firm a clear understanding of regulator expectation and industry practice.

Stay up-to-date with news about our upcoming SMCR webinar and online training courses.


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