Changes to the Senior Managers & Certification Regime (SM&CR)

Last week the FCA rolled out the near final rules of the Senior Managers & Certification Regime or the SM&CR. The new changes are all about creating greater clarity around the roles and responsibilities people hold in an organisation.

So, let’s get straight into it.

Who does this affect?

The SM&CR will apply to all firms authorised under the Financial Services and Markets Act (FSMA) and regulated by the FCA, to those in the European Economic Area (EEA) and third-country branches.

Firms affected by these changes will move to the new regime on the 9th of December 2019, so we’ve got plenty of time!

How it will impact you and what requirements will apply to you will depend on whether or not your firm is classified and a Limited Scope, Core or Enhanced firm.

  • Limited Scope
    This covers Sole Trading financial advisers. Although compliance is still required by you, you do not need to allocate responsibilities to individual senior managers. Specific investments markets will also be included in this area.
  • Core
    This area will cover the majority of firms.
  • Enhanced
    This is purely for the big players in the market, additional rules and scrutiny will apply given the greater impact on customers.

What are the main pointers?

The reality is, there’s quite a few but here are the top 5 in our opinion:

  1. Duty of responsibility

Every Senior Manager will have a Duty of Responsibility which means that if the firm is in breach of one of the FCA’s requirements, the Senior Manager will be responsible for that area or areas and they will be held accountable if they didn’t take reasonable steps to prevent or stop the breach, ouch! Do I hear anyone volunteer as tribute? No? yeah I didn’t think so.

  1. The client dealing function

The intention is not to only replace the current CF30 function but to apply this it any person dealing in or arranging investments with clients, proprietary trader or anyone with significant responsibilities for a business unit.

  1. Not a Senior Manager?

Do you think you’ve got out of being  accountable because you’re not a Senior Manger? Bad news for you then. Anyone who supervisors or managers a Certified Function, whether directly or indirectly, but who are not classed as Senior Manager, will still be held to the same standard of accountability as a Senior Manager.

  1. Outsourcing

Outsourcing staff seems to be trending at the moment, but you may want to think again about outsourcing your Senior Managers. You will still be held fully responsible for carrying out all of the regulatory obligations. As the FCA has said, you can outsource the function, but you cannot outsource the accountability.

  1. Prescribed Responsibilities (PRs)

These are specific responsibilities that a firm must give to a Senior Manager. These are in addition to the inherent responsibilities that are an essential part of a Senior Manager role. Each PR should be given to the individual who is the most senior personal responsible for that activity or area. The individual must have sufficient authority and the appropriate level of knowledge and competence to carry out the responsibility properly. Therefore the PR should not always go the individual who holds the Senior Manger Function. This is because sometimes other within the firm will have higher responsibilities. So again, you may not be getting out of being held responsible just because you don’t have the matching title.

And there you have it, the top 5 changes the SM&CR is going to make, according to us. As we are all about keeping everything short and sweet (where possible, not always the way in reality), we’ve naturally not included every ounce of detail here. The good news for Apricity cleints is that there’s a more in-depth review, including the potential impacts on you personally, available in the Knowledge Base of the system – so go check it out now.