The new Senior Managers and Certification Regime (SMCR) became live in March 2016 and is the regulatory response to the Credit Crunch. It is designed to encourage individuals to take greater responsibility for their actions and make it easier for both firms and regulators to hold individuals to account.
A key element of the SMCR is the new Conduct Rules which replace the Statements of Principle for Approved Persons in Banks, Building Societies, PRA designated Investment Firms and Credit Unions. The Conduct Rules define the expected standards of behaviour for individuals and seek to drive positive behaviours. The rules are also intended to act as a deterrent by providing a framework by which regulators can take enforcement action against individuals who breach the rules.
From 7 March 2017, the scope of the Conduct Rules will be extended to cover most individuals carrying out regulated activities within the banking industry. As a result firms are required to ensure their staff subject to Conduct Rules are notified of the rules that apply to them and to ensure that those persons understand how the rules apply to them.
The Regime has set clearer expectations of the behaviour of both senior and more junior employees and replaces the Approved Persons regime a licensing regime operated by regulated firms themselves. The ultimate goal is to enable regulators to apportion blame to individual senior managers if things go wrong and to take disciplinary action against them. This concept of Individual Accountability will have important implications for all governance structures.
Statement of Responsibilities is a key change. This document will define the scope of the senior person’s responsibilities and potential liability. A great deal of care will be needed in drawing these up and maintaining them over time.
Reverse Burden of Proof – this was removed after lobbying from the industry. Originally, Senior Managers would be considered guilty of a compliance offense until they proved themselves innocent.
A similar regime, the Senior Insurance Managers Regime (SIMR), has also come into force for the insurance sector.
Whilst the Approved Persons regime continues to apply to the wider financial services industry outside of banking and insurance, the intention is for a version of the new regimes to be extended to all financial services firms in 2018.
Even though the Approved Persons Regime has been replaced in the banking & insurance industry will be replaced, the FCA will still require that all firms employ personnel with the ‘skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them’ – the ‘Competent Employees Rule’ found in SYSC 5.
This course will cover all the obligations relating to the Senior Persons Regime and those for competence, including ideas on how to devise an effective T&C regime, and how to assess competence and ensure it is maintained.