Here we look at the SMCR compliance responsibilities of companies following the new Senior Managers Certification Regime legislation governed by the Financial Conduct Authority (FCA), who it affects, and law firms and consultancies who provide training and advice.
Introduced in March 2016, SMCR (Senior Managers Certification Regime) is a law designed to regulate the conduct of higher level managers within finance firms or companies with significant financial influence, making them more accountable to consumers.
Also known as SM&CR, the legislation puts the responsibility of activities within a company onto senior managers, including non-executive directors.
The Duty of Responsibility
Every senior manager has a specific Duty of Responsibility under SM&CR. If a firm fails to prevent the lapse and any breach that has occurred, the relevant senior manager of that area is held accountable. While putting the onus on the FCS to take stong action, it is also required to consider the circumstances of the case — how serious is the breach and other managerial limitations.
Who Does SMCR Affect?
While the SMCR has been introduced with good intentions, it is likely to raise the cost of compliance for financial firms and the increased cost will be borne by consumers. According to an estimate by the UK Financial Conduct Authority (FCA), implementing the new regime would cost firms approximately £550m. The same study says that 900+ banks and building societies would be impacted by this.
The new regime also ensures that the actions and conduct of senior managers are more tightly regulated and scrutinised after implementation. According to the FCA, under SMCR, it issued penalties to the tune of £391.8m in 2019.
Even Standard Chartered Bank were served a penalty notice of £102m for SMCR violations.
Therefore, all organisations big or small have to adhere to the prescribed set of guidelines and monitor the conduct of people throughout the organisation. Firms may be required to create a Compliance Director role to ensure SMCR guidelines are properly followed.
How to Ensure SMCR Compliance
Here are some tips for implementing process to ensure SMCR compliance within your organisation:
- Create a common repository of information: Compartmentalisation of data in various departments is a big hindrance in compliance process implementation. Management should be able to view the aggregated data in a single click and that’s possible only when you use SMCR software. It consolidates all data regularly in a standard template where all stakeholders can view it in real-time. The success of SMCR complaince systems depends a lot on the involvement of senior managers and how they engage in the process. SMCR software also facilitates cross-department collaboration and removes silos within an organisation.
- Update various employee contract policies: Because of SMCR, suitable amendments in various contracts with employees will require it to be made clear whether it is disciplinary policy, compliance training policy, remuneration policy or screening-verification policy. For example, in the updated scenario, the outcome of disciplinary proceedings will have to be mandatorily disclosed in the regulatory context. Under SMRC, any breach of conduct has to be classified as ‘misconduct’ and this has to be reported to the FCA. Additionally, completing conduct rules training will be mandatory for employees of any relevant organisation. The points to consider here are:
- Evaluate carefully how your existing policies will be impacted.
- Evaluate whether you need to introduce new policies to conform with the SMRC guidelines.
- Assess whether you need to communicate these changes to employees and how.
- Focus on HR Policies: You will require suitable HR policies for those employees who have undergone compliance training and are certified. This is because serious breaches need to be reported immediately. Devise a clear process in your firm as you will have to combine the disciplinary process with any dealings with the FCA to avoid potential inconsistencies.
Law Firms & Consultancies for SMRC Compliance Training or Advice
Pershing offers a broad range of SMCR compliance solutions for investment banks and a wide range of financial institutions across the UK.
Phone: +44 (0)20 7163 8000
Address: 1 Canada Square, Canary Wharf, London E14 5AJ, United Kingdom
- Latham & Watkins LLP
With offices in more than 14 countries, Latham & Watkins solicitors have expertise in almost all types of legal services, including SMCR compliance. They have a prestigious list of financial clients.
Phone: +44 (0)207 710 3080
Address: 99 Bishopsgate, Cornhill, London EC2M 3XF, United Kingdom
- BCS Consulting
BCS Consulting is one of UK’s most prominent SMCR consulting firms with a rich experience in compliance handling. Based in London, they have been at the forefront of guiding financial institutions in UK in the area of SMCR compliance. Their clients come from a wide range of sectors that include retail banking, corporate banking, capital markets, insurance and mortgage financial institutions.
They also offer SMCR e-learning training solutions to corporates. They have extensive practical experience of supporting firms to implement and comply with all aspects of the SMCR guidelines. Leveraging their deep expertise in SMCR compliance, they have created a series of e-learning modules for senior managers comprising its best practices.
Phone: +44(0) 20 7648 2050
Address: 5th Floor, 8 Old Jewry, London EC2R 8DN
- Duff & Phelps
With a footprint in more than 25 countries, Duff & Phelps is counted among the best in the area of governance, risk and transparency solutions. They have clients from sectors in the areas of valuation, corporate finance, dispute resolution, capital markets, mortgage finance and insurance. They are advisors to world’s standard-setting bodies on compliance and governance best practices.
Phone: +44 20 7089 4700
Address: The Shard, 32 London Bridge St, London SE1 9SG, United Kingdom
If you’d like expert advice and support in ensuring SMCR compliance within your organisation, then any of the companies above should do a good job in guiding you.