The Senior Managers and Certification Regime, Explained
The Financial Conduct Authority recently announced the roll-out of the Senior Managers and Certification Regime . This new financial regulatory framework has been designed and is being increasingly implemented to improve compliance and accountability across the UK's financial sector.
Things are changing in the united kingdom with regards to compliance in finance and instead of having all responsibility and blame put on the desk of compliance managers, staff
A previously all too prevalent problem within compliance across the financial sector was there was no clear framework with regards to who is accountable as well as for what. Previously, if there is any issue with compliance amongst senior management or any other staff in a firm, it was the responsibility of a compliance manager.
An issue which has emerged has been the buck was once passed and moreover, there is very little personal accountability. It is this accountability and also the need to simplify how financial compliance works that's been one of the drivers of the SMCR.
Who Does SMCR Affect?
Broadly, SMCR applies to the whole FCA regulated and authorised financial sector in the UK, with some nuances and details to think about. Whilst SMCR replaces the prior Approved Persons Regime , it's no effect on the Approved Persons regime and it also doesn't affect banks, as they are subject to regulations underneath the Senior Managers Regime which is more tailored to the requirements and needs from the banking sector.
SMCR categorises financial firms into three broader types of firm which are:
- Core Firms – This classification includes most UK financial firms and the standards, requirements and regulations for core firms would be the benchmark of expectation and the FCA's baseline with regards to what firms must adhere to.
- Enhanced Firms – Still subject to the guidelines as well as as core firms are, enhanced firms' specific regulations as well as are designed especially for those firms which may be referred to as 'more complex' within their make up and nature. Thus, regulations and requirements for enhanced firms are made to reflect the extra and enhanced needs of complex companies that require additional and more complex regulatory oversight.
- Limited Scope Firms – Few firms will become qualified as limited scope. However, importantly, the FCA have designed regulations and framework to use to people firms who will already be susceptible to some exemptions under the Approved Persons Regime.
What Kinds of Financial Companies Are Susceptible to SMCR?
Since 9th December 2021, which marked the initial implementation from the SMCR programme across the UK's financial sector, most financial firms will have to adhere to the regulatory regime and practices under SMCR. Many 'well-established' financial firms for example experienced financial advisors, insurance brokers as well as lenders, including those offering specific-purpose mortgages like those for do it yourself will happen to be aware and will also be compliant.
However, because this regulation pertains to companies offering not only financial advice and products within the 'purest sense,' but additionally to people who offer consumer credit, a lot of companies who've been unaware may take a hit and should comply too. This includes :
- Dentists offering finance packages
- Companies and dealerships offering car finance
- Lenders of personal loans
- Investment managers
- Financial product distributors
The Three Pillars of SMCR Compliance
Although there are some levels to the SMCR programme, more broadly, you will find three key pillars:
Senior Managers Regime – This covers probably the most senior people within firms for example Chief Executives, Partners and Non-Executive Directors who all have to be directly authorised by the FCA.
Certification Regime – For all employees of non-senior level, but who may otherwise potentially damage a firm.
Conduct Rules – Fundamental essentials rules which govern conduct of all non-senior and senior individuals under the SMCR.
