SMCR – how prepared are you?

25 September 2018

As we are now over half way through 2018 and SMCR regime begins next year, it might be timely to remind everyone of what they need to be doing now to prepare.

Man in suit holding icons of people in his hands

The Senior Managers and Certificate Regime (SMCR)

“Form K must be accompanied by a Statement of Responsibilities for each Senior Management Function (SMF) and an overall management responsibilities map.”

It seems like a strange way to begin an article but as we are now over half way through 2018 and SMCR regime begins next year, it might be timely to remind everyone of what they need to be doing now to prepare.

“The SMCR will affect the most senior management, with board members (or equivalent) and those who have significant influence, or the ability to cause significant harm to a firm’s business, being assessed and registered as falling within the Senior Managers requirements…”

Although there are a number of issues to consider, there are four which need to be considered now:

  • Statements of responsibility; 
  • Board composition and management structure; 
  • Contractual requirements; and 
  • Modification of internal processes and procedures.

The area we will look at in this article is the first one – statements of responsibility – as it is the one that firstly, you should already have some structure for and secondly, because it is the area that often can take the most time to agree. 

Having said that, often firms do not have a clear map of responsibilities or accurate job profiles, therefore we will use the term ‘job specifications’, which is a set of specified job responsibilities that each Senior Manager has accepted and agreed is their responsibility within the firm. 

Often, firms will have ensured that more junior employees have these specifications, but senior people often do not due to taking joint responsibility or switching from area to area of the business depending on the day of the week! 

This is not necessarily a problem as this is often how brokers will work, but the bottom line is that a named individual will take ultimate responsibility for specific issues within the firm – money laundering for example.

Statement of responsibilities - what it actually means in practice

The statement of responsibilities is a single document that every senior manager will need to have, clearly setting out their role and responsibilities. This is required under FSMA (Financial Services and Markets Act 2000) and applies to all firms. The simplest way to achieve this is to document clearly (in the form of a job spec) stating what each manager does and takes responsibility for. Every senior manager must have a duty of responsibility under FSMA. This means that if a firm breaches one of the FCA’s requirements, the senior manager responsible for that area could be held accountable if they didn’t take reasonable steps to prevent or stop the breach.

Responsibilities map

This applies to enhanced firms only. Enhanced firms (this includes intermediaries, although not sole traders) must prepare and maintain a responsibilities map. This is a single document that sets out the firm’s management and governance arrangements

What should you be doing now?

Practical steps that you should be taking: 

  • Consider, at board level, exactly who is responsible for what area of the firm’s business and ensure that this is minuted as an action point, with a specific date deadline for completion.
  • As part of the exercise, consider exactly what Senior Management functions will apply to your firm. As part of that action, acknowledge that this is not an HR issue – this is a corporate governance issue that needs to be tackled as early as possible. 
  • Consider that there may be a need to propose employment contract changes if a specific responsibility has not fallen to an individual previously, since that individual may have the right to not wish to carry that responsibility. 
  • You will probably find it useful to work with your internal compliance department (or external consultant) to identify what roles and responsibilities need to be scoped out. 
  • Don’t forget that the SMCR allows someone to cover for a senior manager, without being approved by the FCA, where the absence is temporary or reasonably unforeseen and the appointment is for less than 12 consecutive weeks – the ’12 week rule’. This is an important part of your planning and this responsibility will also need to be written into that individual’s job spec, so you may decide that now is the time to revisit all your firm’s job specs – not just the senior management ones
Remember, senior managers and certification staff must be identified and trained, and abide by the Conduct Rules, from 9 December 2019, but you will have 12 months from that date to train other staff on the Conduct Rules. This might seem like a lifetime away but laying down the groundwork now will save you having a panic rush next year.
This article is provided for information purposes and is general and educational in nature. Nothing in this article constitutes legal advice. You are free to choose whether or not to use it and it should not be considered a substitute for seeking professional legal help in specific circumstances.