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16 April 2020 7 min read

Covid-19 does not relieve Senior Managers from their SMCR obligations

Guy Munton

Guy Munton
Partner | Regulatory compliance and CASS SME | London

Covid-19 is the first global crisis since the Senior Managers and Certification Regime (SMCR), the regulation aiming to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence, was put in place.

The commercial pressures to mitigate risk exposure in response to the crisis do not relieve Senior Managers of their obligation to take reasonable steps to protect customers from poor outcomes, and to prevent things from going wrong in their areas of responsibility.

The FCA and government have reiterated this in a number of their recent messages.

Are you as Senior Manager confident that you are taking reasonable steps to ensure things do not go wrong in your firm during this crisis?

Covid-19 puts a strain on the Financial Services sector and the responsibilities of their Senior Managers (SMFs). For example SMFs need to:

  • Identify key workers required to maintain essential products and services that Financial Services firms provide.
  • Identify which employees are unable to perform their jobs from home and have to travel to an office or business continuity site.
  • Ensure customers can contact the firm to manage debts, make claims or access their savings, investments or pensions.
  • Ensure markets continue to function well in a world of remote working and the potential lack of consequential oversight and control.
  • Mitigate risks to vulnerable customers.

Another area where reasonable obligations have been stretched by Covid-19 is insurance product governance. This has been highlighted by the press on many occasions recently.  For many insurers, product governance is a second priority over the challenge to maintain operations throughout Covid-19, but the FCA warned to maintain cover for customers who are acting differently as a consequence of government measures. Others have been asked to consider customers’ cover and renewal dates, ensuring customers are treated fairly.

Examples of good practice to ensure compliance with SMCR include:

  • Accountable SMFs understand their personal liability where they are actively intervening in Covid-19 related product decisions.
  • Adding a layer of assurance that customer outcomes are properly being taken into account and balanced alongside commercial imperatives.
  • Taking steps so SMFs will be able to evidence how they took reasonable steps to perform their duty and meet their conduct obligation in several months’ time, when the industry and the regulator are looking back on how firms responded to the crisis.  

We note there is room for improvement in many organisations, eg in insurance where it is essential to have emergency procedures in place to ensure that product suspensions can be implemented quickly to mitigate commercial losses whilst investigating alternative approaches, and still adhering to reasonable steps obligations.

In some firms, Covid-19 has served to highlight weaknesses in the way they have implemented individual accountability. Where firms are struggling, we have seen:

  • Lack of SMF ownership for products—Covid-19 related product decisions are not being escalated to or reviewed by those who are personally accountable for the outcomes.
  • Lack of SMF sponsorship of an effective product governance framework—leading to processes being put in place which are inefficient and lack purpose and direction.
  • Disbanding of governance frameworks—in some cases, existing product governance frameworks are being disbanded entirely to enable Covid-related product changes to be made.

When looking at how firms have responded to the current compliance challenges, there are similarities in good and poor practice, and therefore in the personal risk to Senior Managers.

What can firms do now?

Without doubt, firms must focus all attention on weathering the storm and ensuring operational continuity. This must be done within the bounds of the regulatory system, ensuring that markets work well and customers are treated fairly at all times. After the crisis, when things return to BAU, regulators will have the powers to bring enforcement against individuals for actions that are now taken under severe pressure and with a short-term focus.

Are you confident that you, as a Senior Manager, are taking reasonable steps during this crisis?

Please contact Guy Munton, Dan Golding, Stephen Humphreys or Jo Cordner if you would like further information.