About SM&CR

SM&CR is designed to strengthen individual accountability and market integrity and is the most significant change for individuals working within the UK financial services industry. Its implementation comes after widespread criticism of the outgoing Approved Persons Regime (APER) during the wake of the financial crisis.

The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) implemented the regulation for banks, building societies and PRA-designated investment firms in March 2016, and plan to apply it to FCA solo-regulated firms in mid-to-late 2019. A parallel regime was introduced for insurers in March 2016, which incorporates many elements of SM&CR. Insurers will transition from this regime to SM&CR starting 10 December 2018.

A tiered approach will be taken to implement SM&CR to FCA solo-regulated firms: 

• Enhanced regime, for the largest and most complex firms; 
• Limited scope regime, for the smallest and less complex firms; and, 
• Core regime, which most UK firms (approximately 40,000) will fall under. 

The new regulation has three components:

• Senior Managers Regime applying to the most senior management of a firm and certain members of the board.
• Certification Regime requiring annual certification of individuals who are in roles that can cause significant harm to a firm or its customers.
• Conduct Rules applying to most employees.

Key challenges

We recognize that the regime introduces a number of new procedures, including changes to regulatory approval processes, the requirement for self-certification and changes to HR and compliance processes more broadly. However, this regime is focused on individuals, and firms must ensure they pay due regard to the impact of the regime on individual employees and directors, alongside the required process change.

Based on our significant experience supporting firms in the banking and insurance sectors, as well as helping firms plan for 2019, we identified several challenges which should be considered in anticipation of SM&CR implementation. Addressing these challenges from the outset (some of which may be complex to resolve), will reduce the risk of having to re-visit and re-perform activities later in implementation, and importantly, will deliver the support to individuals impacted by the regime. These challenges include:

1. Aligning authority with accountability. Ensuring that those asked to be accountable have sufficient authority to support that requirement. This can be complex for organisations that are part of a group where significant outsourcing exists or where there are ambiguities in role responsibilities (for example where job descriptions are unclear or out of date).
2. Delegation and oversight. Providing the tools and mechanisms by which accountable individuals can delegate with confidence.
3. Governance arrangements. Considering whether existing arrangements, and the management information that supports governance, are up-to-date and remain fit for purpose.
4. Legal entity considerations. Where a regulated entity is part of a group, including where a parent may be based outside the UK, is the regulated UK entity given sufficient attention, whilst maintaining synergies across the group.
5. Training and support. There has been, and continues to be, significant public, media and political interest in SM&CR. It is important that firms provide training and support to individuals at an early stage to avoid misinformation and confusion.

How Duff & Phelps can help

We have significant experience supporting all aspects of SM&CR across diverse financial services firms. Our services include:

• Implementation advice and support, with solutions that are tailored to each client, utilising our deep experience and tools we have developed.
• Review of services for firms already subject to SM&CR to provide management with the assurance they remain compliant and up-to-date.
• Training and support solutions, which can be delivered individually, to boards, executive committees and broader employee populations.
• Ongoing SM&CR compliance support, assisting with registrations, regulatory references and other regulatory submissions.
• Crisis management support for firms and individuals, advising on protective actions where there is potential or actual regulatory enforcement action.