“To satisfy the requirements of SMCR, these structures need to accurately reflect the business activities of the firm and demonstrate where true accountability for these activities lie.”
Gavin Stewart, regulatory specialist at Grant Thornton, says the changes may require a cultural shift.
“The over-riding challenge for firms will be to understand how the new proposals will affect their underlying business model and culture. On the face of it, SMCR is all about accountability maps and statements of responsibility for Senior Manager Functions (SMFs).
“Underneath, however, it will affect who is involved or wants to be in certain decisions, and whose responsibility it will be to sort out problems in specific areas. And if your accountability map does not give a true reflection of how your business operates in practice, you will almost certainly tie yourself in knots.”
Stewart notes that certification and the associated annual assessments will certainly place extra strain on human resources departments.
He adds: “Wealth management firms are unlikely to be in the enhanced regime and therefore will have a somewhat lighter burden but this carries its own challenge.
“The good news, if you are not an enhanced firm, is that you can’t make too many individuals into SMFs. The bad news is, for those firms, some of whom will be quite large and risky, the few SMFs there are will have a lot of accountability on their shoulders.”
Grant Thornton has also put together the following summary of the key components of the regime.
Senior Managers Regime: This remains the central feature of the regime, and each Senior Management Function will need to have a Statement of Responsibilities, and a Duty of Responsibility to take “reasonable steps” to prevent things going wrong. There are also some new “Prescribed Responsibilities”. How firms divide up and define these roles will have a profound effect on their culture.
Certification Regime: This will apply to roles, beyond Senior Managers, that can have “a big impact on customers markets or the firm” e.g. Client Assets Sourcebook (CASS) oversight, client dealing functions and material risk takers, and is required by the legislation. Interestingly, and probably unhelpfully, these are referred to as “significant harm functions”. Certification will extend the direct reach of regulation to individuals whose previous relationship with the FCA has been only through the handbook or, in some cases, non-existent.
Conduct Rules: There are five of these. On one level, they are quite basic, e.g. acting with integrity and treating customers fairly, and of the type firms would naturally expect of their staff. The unknown element is that they effectively apply the FCA’s Principles of Business, until now focused on firms and controlled functions only, to everyone working in financial services the only exception being ancillary staff.
