On Thursday 13th June Baringa Partners and Dentons co-hosted an SMCR round table where we were delighted to have Financial Conduct Authority Technical Specialist Peter Ewing as our guest speaker.
Some key take-away points for solo-regulated firms which came out of the discussion included:
- Senior Managers: it was clear from the lively discussion that this aspect of implementation is giving rise to interesting issues and challenges. For example, when SMF7 should apply and when an individual will be performing SMF3, when they are not a named director of the firm.
- Culture: Firms and their senior managers should treat SMCR implementation as part of their work to ensure that they have a healthy culture rather than a box-ticking exercise (and will derive most benefit from it if they take this approach). This is part of the FCA's broader culture and governance priority, as set out in its 2019/20 Business Plan. Thinking about how best to really embed the Conduct Rules, both via training and other initiatives is key.
- Certification: issues discussed here included what a proportionate approach would be to documenting a decision to certify an individual, both at the outset, and then annually. Firms do need to issue a certificate to certified individuals setting out prescribed information such as what function they are certified to perform. However, this does not necessarily need to be in the form of a paper certificate; an email would suffice.
- Fitness and propriety and regulatory references: ways to deal with fitness and propriety issues while ensuring that firms do so fairly and consistently, and thereby mitigate any potential employment law issues, was discussed among the group. This has taken on new importance given the potential impact on an individual's regulatory reference. Key options here include guidelines for those assessing fitness and propriety, issue escalation committees, and ensuring contracts with staff give firms the rights needed to deal appropriately with the situation, if an individual is found not to be fit and proper.
- Statements of responsibility for core firms: these do not need to take a "no gaps" approach to what is put in the "Other Responsibilities" box: this should include other responsibilities of the senior manager, but there is no need to allocate responsibility for everything amongst a core firm's senior manager population in this box.
- Opting up to enhanced: this was discussed as being of interest to larger firms and those who are part of a group including other firms who meet the enhanced criteria. Core firms cannot cherry pick from the enhanced regime, for example, using the SMF18 function to make an individual a senior manager who does not meet the definitions of the other core senior manager functions.
Finally, some general implementation project tips arising out of the session included:
- Try not to focus solely on senior managers - Certification and the Conduct Rules are equally important
- Aim to think about how this will all work in practice after implementation, as there are a large number of changes to ongoing processes (especially around managing performance and conduct and recruitment) that will need ongoing attention
- Senior engagement with, and sponsorship of, the project is likely to be an important factor in ensuring implementation is more than just a tick-box process, and in ensuring that those senior individuals (some of whom will have prescribed responsibilities for compliance with the regime) really understand the nature of their responsibilities going forward.
For more information on our work on SMCR, events and materials including our Guide and Toolkit please reach out to Guy Munton or Edouard Bassil.