Understanding the Senior Managers and Certification Regime

The Senior Managers and Certification Regime (SM&CR) was originally introduced to the banking industry in March 2016 to replace the Approved Persons Regime (APR), which the Parliamentary Commission on Banking Standards described as being “too narrow” and “failing”.

The aim of the SM&CR is to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence - encouraging a culture of personal responsibility by staff at all levels and making sure that both firms and staff clearly understand and can demonstrate where responsibility lies.

After being extended to cover insurers in December 2018, the SM&CR will be extended again on the 9th December 2019 to cover nearly all FCA solo regulated firms. For some businesses, implementation of the SM&C has affected up to 40% of workers, and so it is vital that employers within scope of the regime approach the SM&CR as a cultural shift towards individual responsibility and compliance rather than view the regime as a simple box ticking exercise.

The SM&CR comprises of the Senior Managers Regime, the Certificate Regime and the associated Conduct Rules, which may be applied to various functions within a business. the SM&CR classifies businesses as Limited Scope, Core or Enhanced and this will dictate the controls and processes that need to be in place by the 9th December. A brief description of The Senior Managers Regime, The Certification Regime, and Limited Scope, Core and Enhanced firms is provided below.

The Senior Managers Regime requires affected businesses to establish clear accountability of its senior staff - while a senior leader may delegate their tasks to staff further down the line, they cannot delegate the accountability for oversight and results of actions taken by staff.

This is evidenced by:

• A Statement of Responsibility which outlines every senior managers area of personal responsibility within the business.

• A Firm Responsibility Map, providing clarity of how people and responsibilities are aligned to each other.

• Pre-Approval by the FCA of any person holding roles as a senior manager to ensure suitability of that person- including evidence of due diligence done.

The Certification Regime requires a firm to ensure that no employee of the firm performs an FCA certification function under an arrangement entered into by the firm in relation to the carrying on by that firm of a regulated activity, unless the employee has a valid certificate issued by that firm to perform the function to which the certificate relates.

Under section 63F of the Act, a firm may issue a certificate to a person only if the firm is satisfied that the person is a fit and proper person to perform the FCA certification function to which the certificate relates.

Limited Scope

Any firm that currently has a limited application of the Approved Persons Regime will fall into this category.

The firms will be required to allocate only three Senior Management Functions indicated by the FCA to appropriate individuals. Limited scope firms automatically transfer to the SM&CR.

Core

The majority of businesses will fall into the Core category. They will require six Senior Management Function positions, however only one of these, the Chair can be held by a non-executive director.

In addition, the FCA defines five detailed Prescribed Responsibilities to be assigned to appropriate individuals, and all senior managers within the business will need a Statement of Responsibility. Core firms automatically transfer to the SM&CR.

Enhanced

Businesses will only fall into the Enhanced category if they meet specific criteria relating to size, complexity and potential impact on consumers/markets.

These firms will require seventeen Senior Management Function roles and twelve with Prescribed responsibilities. Such businesses will not automatically transition to the SM&CR.