(SMCR) Senior managers and certification regime

Individuals

Individuals holding senior management functions must be allocated prescribed responsibilities by their firms (those responsibilities inherent in the definition of the SMF and other prescribed responsibilities identified as such by the FCA and PRA).  Senior managers need to examine carefully the scope of the responsibilities allocated to them by the firm (set out in a “statement of responsibilities”) and to refuse to accept anything that is outside their actual responsibility or expertise. Senior managers are under a statutory duty to take reasonable steps to prevent regulatory breaches in their areas of responsibility and also face criminal liability if they recklessly make a decision (or fail to prevent a decision) that leads to the failure of their financial institution.  Clarity over their areas of responsibility is key.

An assessment of an individual by their firm under the Certification Regime that they are not fit and proper could have very serious implications for them from an employment and regulatory perspective.

The regulatory reference regime applies whenever an individual applies for a regulated role: the employer is required to take up references from any regulated employer who has employed that individual during the previous six years. The reference follows a template prescribed by the FCA and requires the former employer to respond to a number of questions, including whether they consider the individual to be fit and proper, whether they took certain disciplinary action against the individual and whether there is any other information relevant to an assessment of whether they are fit and proper. A negative response to any of these questions can have serious implications for the individual’s career in regulated financial services.

Financial Organisations

Firms should consider the allocation of responsibilities amongst senior managers and assess the areas of responsibility falling within the certification process.

It is important that firms fairly assess the responsibilities of their employees and that the exact extent of their remit is acknowledged and clearly defined so that an individual is not allocated responsibilities outside the scope of their duties, either in their individual statement of responsibility or the firm’s overall responsibilities map.

Together these documents should make clear who is responsible for what, and ensure individual accountability.

The FCA monitors how firms implement the SMCR regime and this ultimately impacts on their regulatory risk in future. Support functions such as HR and IT departments, as well as Compliance and Risk must address legal and operational issues, including ensuring that appropriate policies and training are in place.

Firms need to identify individuals within the scope of the regime and ensure their employment documentation, governance structure and resources are appropriate.

How we can help

With a financial services team drawn from our regulatory, corporate commercial and finance, employment and partnership and criminal departments, we are able to assess holistically the needs of our clients.

We have worked with a number of regulated firms on regulatory issues and are familiar with working with the FCA. We are able to assist with the drafting of relevant documents, including individual statements of responsibility and the firm’s overall responsibilities map. We are here to help with training needs and the amendment of policy materials.

For individuals, we can advise on how to negotiate the ambit of their responsibilities, what the regime requires in terms of the discharge of their duties and conduct and what they can do to protect themselves, particularly if they have grounds for concern about their personal position and potential exposure.

We regularly deal with financial regulators and act for clients in cases involving disciplinary and enforcement action, Conduct Rule breaches and regulatory references