The SM&CR – senior managers certification regime for SOLO regulated firms

The UK Financial Conduct Authority (FCA) has released their final rules for extending the SMCR to solo regulated firms, that is, UK financial services firms who are regulated only by the FCA.

The SMCR is designed to improve individual accountability and governance within the financial services sector including in banks, building societies and Prudent Regulation Authority (PRA) designated investment firms. The changes will impact several functions within firms including human resources, corporate governance and compliance as well as affect claims management companies, European Economic Area (EEA) and third-country branches.

There are three tiers of solo regulated firms, all with different levels of obligations. Core firms, which is the baseline standard in SMCR and includes most firms. Limited scope firms, which operate under a reduced level of legislature, are mainly firms who have exemptions under the Approved Persons Regime. As part of the SMCR, the Senior Conduct Rule 4 (SC4) which requires appropriate disclosure of information which the FCA or PRA would expect to be notified of, now applies to non-approved executive directors.

Enhanced firms are larger companies which necessitate more complex requirements. The criterion for enhanced status has changed, and now captures Non-Retail Mediation Activity (RMA) B firms through annual self-assessment and declaration.

In order to satisfy compliance, firms must consider the fitness and propriety of all staff, especially certified or senior manager roles. Fitness and propriety must be assessed at both the appointment of staff and every year thereafter. In addition, the same assessments must take place when something has happened which calls the F&P of a certified or senior manager into question. The head of legal function will now be excluded from the senior manager approval requirements but will still operate under the conduct rules and certification.

Senior managers will now be tasked with creating a statement of responsibilities, which must be kept up to date. In addition, the FCA has released a reference request template which includes 6 years of detailed employment history. These will be required when employees apply for a regulated role in a different firm and will improve transparency in employment history.

There are also changes to the scope of the Client Dealing Function, which now excludes those who are not responsible for choosing a course of action within their duties and whose role does not require significant amounts of skill.

With a view to helping the FCA make key senior individuals responsible and accountable for potential problems, companies must be compliant in the new SMCR by 9th December 2019.