Independent Review of Risk Management Framework
Senior ManagersManagers and Certification Regime
The Senior Managers and Certification Regime (SM&CR) is a regulatory framework aimed at strengthening the accountability of senior management within the financial services sector. The SM&CR forms a part of the broader Individual Accountability Regime (IAR) led by the UK’s Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).
Overview of Topic
The SM&CR is an evolution in the UK’s financial regulatory landscape, intended to increase the accountability of senior management in the financial services sector. Launched by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), the SMR falls under the umbrella of the Individual Accountability Regime (IAR). It requires that individuals in senior positions of financial services firms have clear responsibility for their roles and actions. It entails firms clearly defining the responsibilities of their SMFs and ensuring they are fit and proper to perform their roles in the organization. The SM&CR aims to enhance the standards of conduct at all levels, support effective governance, and prevent harm to consumers and market integrity by imposing a system of perverse incentives on senior individuals in firms to behave responsibly and promote effective cultures within their organizations. It ensures the regulatory requirement that the executive director risk and other significant risks are well managed.
Significance in Today's Landscape
The SM&CR became effective for banks and building societies in March 2016, dual-regulated insurers in December 2018 and solo-regulated firms in December 2019. The number of individuals fined between 2019 and 2020 doubled (last reported data).
WHO DOES IT IMPACT?
The SM&CR applies to all UK banks, building societies, credit unions, and PRA-designated investment firms, including branches of foreign banks operating in the UK
How Can We Help?
Our services include:
1
Application Preparation
Our regulatory advisors, collaborating with the client’s legal advocates, provide support with the preparation of the required SM&CR application documentation, including Statements of Responsibilities for senior managers, management responsibilities maps and any other relevant documentation.
2
Gap Analysis
Our regulatory advisors conduct a detailed review of the organization’s existing practices and policies to identify gaps in compliance with SM&CR requirements.
3
Section 166
Section 166 of the Financial Services and Markets Act 2000 (FSMA) in the UK—or “Skilled Person Review” or “s166 review”—provides the UK financial regulators with the power to require a regulated firm to have its activities reviewed and reported on by an independent third party (typically a consultancy firm), where the regulator has concerns about those activities. We count with several professionals with experience as skilled person, or that could be approved for this purpose.
4
Training and Cultural Change and Leadership Development
Our risk and regulatory advisors understand the important of company culture and governance and deliver training programs to ensure that senior managers, certified persons, and other employees understand their responsibilities under the SM&CR.
5
Documentation and Record Keeping
Assist companies in creating and maintaining the necessary documentation, such as Statements of Responsibilities for senior managers and records of certification for certified persons.
6
Policy and Procedure Development
Our risk advisors help companies develop and implement policies and procedures that are compliant with the SM&CR, including fitness and propriety assessments, conduct rule compliance, and reporting requirements.
7
Risk Assessment
Our risk analysts run risk assessments to identify potential areas of non-compliance and recommend mitigating actions.
8
Technology Solutions
We work with a number of technogy partners and therefore can recommend and implement technology solutions that can help companies manage their compliance with the SM&CR, such as certification and record-keeping systems.
SMCR Case Studies Summary
Click on each case study below to learn about the FCA's expectations, key issues, and recommended actions.
Firm 1 applied for a candidate to be approved as SMF3 – executive director. Concerns arose due to a conviction for grievous bodily harm (GBH) five years prior, cultural and conduct issues at a previous firm, and the candidate's prior role as SMF3 during that period.
FCA Expectations:
- Robust recruitment process identifying the candidate as appropriate for the role.
- Full disclosure of the conviction and consideration of reputational risks.
- Evidence of senior management accountability and challenge processes.
- Statement from the candidate on lessons learned and rehabilitation.
Firm 2 applied for a candidate based overseas to be approved as SMF16 – compliance oversight. The firm had inadequate systems and controls and needed to strengthen its governance framework.
FCA Expectations:
- Robust recruitment process demonstrating the candidate’s suitability.
- Addressing skill gaps and establishing a learning and development plan.
- Extra support for the candidate’s induction.
- Confirmation of understanding UK regulatory requirements and oversight arrangements.
Firm 3 applied for a candidate with extensive experience outside financial services to be approved as SMF9 – chair. The firm was undergoing business transformation, with culture issues arising from a recent acquisition.
FCA Expectations:
- Recruitment process highlighting governance and transformation experience.
- Addressing skill gaps and creating learning and development plans.
- Ensuring the candidate can fulfill the role effectively from overseas.
- Confirmation of time spent in the UK and attendance at key meetings.
Firm 4 applied for a candidate to be approved as SMF27 to develop a wealth management business. The candidate had previous involvement with firms that went into liquidation and had potential creditor arrangements.
FCA Expectations:
- Assessment of financial soundness, including creditor arrangements.
- Evidence of integrity and competence despite past issues.
- Explanation of past involvement and lessons learned.
- Mitigation of risks associated with the new business area.
Firm 5 applied for a candidate to hold SMF3 roles at two new firms while already holding several SMF roles at other entities. Concerns arose over governance arrangements, potential conflicts of interest, and the candidate’s capacity to manage responsibilities.
FCA Expectations:
- Demonstration of the candidate’s capacity to manage multiple roles.
- Evidence of support structures and integration processes.
- Identification and management of conflicts of interest.
- Providing specific evidence of governance arrangements rather than generic assurances.
Find more details directly on FCA: Case studies: applying for a senior management function | FCA
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