Senior Managers and Certification Regime

Insights into the regime's extension across the financial services industry

From 9 December 2019, the Senior Managers and Certification Regime (SMCR) will apply to all Financial Services and Markets Act (FSMA) authorised firms, including banks, building societies, asset managers, investment firms, insurers, mortgage providers, consumer credit firms and sole traders. Explore our insights into what the final extension means for your firm.

The extension of the SMCR aims to foster a culture of greater individual accountability. It will increase individual responsibility at the most senior levels and ultimately seeks to continue to help restore confidence in the financial services industry.

As outlined in our latest report on the SMCR – available to download on the right – Financial Conduct Authority (FCA) solo-regulated firms will need to consider the FCA near final rules and guidance (PS 18/14) as well as the FCA’s final guidance on Statements of Responsibilities and Responsibilities Maps (FG 19/2), what these mean to their business model and ensure that their implementation programme covers all relevant steps needed to thoroughly prepare.

With under six months to go until the regulatory commencement date of the extension, firms should already be working on their implementation programmes. It is imperative that they do not underestimate the amount of work required to ensure compliance with the new regime.

This report endeavours to help you understand:

  • How the extension of the regime might affect your firm.
  • The steps that firms should take to prepare.
  • Deloitte’s proprietary Reasonable Steps Framework.
  • Lessons learned from our extensive work supporting firms across the industry to successfully implement the SMCR.

This publication is an update our 2017 publication Coming Full Circle and:

  • Highlights the key activities that FCA solo-regulated firms should be doing now to prepare for a successful transition to the SMCR (section 6).
  • Gives our perspectives on the key learnings and insights from our extensive work supporting firms over the last three years to both transition to and embed the SMCR (section 5).

The SMCR can be split into three key pillars and summarised as follows:

Senior Managers Regime

  • Introduces new ‘Senior Management Functions’ (SMFs) to replace existing Significant Influence Functions (SIF).
  • Introduce specific ‘Prescribed Responsibilities’ which must be allocated to SMFs.
  • SMFs to complete individual ‘Statements of Responsibilities’ and have a ‘Duty of Responsibility’ under FSMA.
  • Firms will need to apply to the FCA for approval for individuals to carry out a SMF and must undertake a criminal record check as part of this process.

Certification Regime

  • Places onus on firms to certify the fitness and propriety of key employees carrying out ‘certification functions’ (previously referred to as ‘significant or material harm functions’). This also applies to senior managers.
  • Requires certificates to be issued to individuals at least annually confirming ongoing fitness and propriety to carry out their role.
  • Replaces regulatory pre-approval for certain individuals (e.g. CF30s).
  • Requires firms to issue regulatory references to an individual’s new employer if they are taking on a Certification, SMF or notified Non-Executive Director role.

Conduct Rules

  • New Conduct Rules to replace APER principles and apply to a broader population.
  • Tier 1 – Individual Conduct Rules apply to all employees, excluding ancillary staff not involved in regulated activities.
  • Tier 2 – Senior Manager Conduct Rules apply to those in SMF positions and require SMFs to take reasonable steps to control their areas of responsibility.
  • Conduct rule breach reporting requirements vary depending on the role of the individual in breach.

We are here to help - both solo-regulated firms, those new to the regime, and those who have been subject to the regime for an extended period of time. Find out more in section 8 of the report and please reach out to one of our team listed below if you would like to discuss how your firm can successfully transition to the SMCR.

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