SMCR regime: What personal accountability rules are changing for financial services employees?

The first full review since the implementation of the Senior Managers and Certification Regime seven years ago, started with a Call for Evidence by the Bank of England (BoE), the Financial Conduct Authority (FCA) and HM Treasury.  

The regime was introduced in response to the problems associated with the Approved Persons regime. It forms part of the accountability regulations in the UK. In December 2022, the UK government announced a review of the SMCR regime as part of the Edinburgh Reforms.  

While a review of the regime is welcomed in general terms, the expectation is that the evidence submitted by stakeholders will inform improvements to the UK’s competitiveness. At the moment there are concerns about the approval process taking too long and the level of personal responsibility discouraging professionals to relocate to the UK. There is also a question mark around the general effectiveness of the SMCR and how well it is working. 

Although the Edinburgh Reforms raised the question if the SMCR was to be abolished, it currently seems unlikely that the regime will be completely overhauled, based on the comments made by Andrew Griffith, Economic Secretary to the Treasury, to the Treasury Committee:  

“There is broad consensus about the validity of having a regime. There will be legitimate views on both sides in terms of how far down an organisation goes, so the key decision-makers who we all understand and accept should be the real focus of that regime versus people further down the organisation just being brought into scope.” 

What is covered in the Call for Evidence (CfE) and Discussion Paper

The HM Treasury launched a CfE, alongside the Discussion Paper which was jointly issued by the FCA and BoE. The deadline to submit responses to the CfE and Discussion Paper is 1 June 2023.  

The CfE particularly focuses on the UK’s international competitiveness and removing low-risk firms from the application of the regime. The Discussion Paper focuses on the efficiency of the regime. The questions raised as part of the CfE are informed by feedback from industry reviews indicate the possible areas that could change as part of this review: 

• Overall, whether the regime is fit for purpose and has achieved its original aims. 

• The effectiveness of the authorisation process of senior manager functions (SMFs). 
• A comparison to other jurisdictions concerning their competitiveness under their respective regime and how other jurisdictions address accountability issues. 
• The Certification Regime and how often certifications must be reviewed. 
• The effectiveness of the Conduct Rules, Senior Management Functions and Prescribed Responsibilities. 

The Financial Services and Markets Bill 

The Financial Services and Markets Bill (FSMB), which is currently at the report stage in the House of Lords, further extends the applicability of the SMCR to central counterparties and central securities depositories. It would further allow the HM Treasury to include credit rating agencies (CRAs) and recognised investment exchanges (RIEs) through secondary legislation. The changes introduced by the Bill follow the HM Treasury consultation that was launched in July 2021 on the SMCR for financial market infrastructures. 

Background

The Financial Services (Banking Reform) Act 2013 created the SMCR, and it was introduced in 2016. The regime initially applied to banks, building societies, credit unions and specific investment firms. Now it includes insurers and solo-regulated firms, except benchmark administrators.  

The SMCR aims to protect consumers and improve market integrity by holding people to account. It is, therefore, split into three parts: 

• Senior Managers Regime
• the Certification Regime, and 
• the Conduct Rules. 

Senior Managers Regime 

Addresses the responsibilities of senior managers and outlines their accountability. SMFs must be “fit and proper” and are subject to a Duty of Responsibility. 

Certification Regime 

This applies to functions that are not SMFs, however, which can have a significant impact on customers and the firm. Firms need to assess which of their employees are subject to the Certification Regime and ensure they are a SMCR certified person. 

Conduct Rules 

Set a minimum standard of individual behavior. The new Consumer Duty rule forms part of the FCA’s overall conduct rules and is due to come into force in July 2023.

CUBE comment

Personal accountability has long been a significant topic in the compliance space as regulators aim to enhance the rules and laws around it. The CfE, the Discussion Paper, the FSMB, and the Consumer Duty, all form part of the wider changes to the financial services supervision framework.  

With many different elements moving simultaneously, it can be difficult to keep track and stay ahead of upcoming compliance obligations. CUBE can help with this struggle by providing you with the relevant regulations, at the right time to give you ample time to implement these into your compliance process.

Keep ahead of emerging regulations by speaking to CUBE.