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09 September 2019 5 min read

What can be learnt from the FCA’s Senior Managers and Certification Regime Stocktake Report

Daryl Close

Daryl Close
Manager | Financial services | London

The FCA has recently published a summary of the key findings of its SM&CR Stocktake Report covering the seven themes that underpinned the review. Baringa directly supported the FCA in undertaking this work, including the completion of firm, regulator and trade body interviews.

The findings of the review will be of interest for the solo-regulated firms who need to be compliant with the regime by December 2019. Baringa has commented on some of the key findings for the themes where the FCA has noted it will take action, including recommendations firms should consider as part of their SM&CR implementation.

Senior Manager Accountability:

  • The FCA has clarified that SM&CR does not directly look to redefine the roles of non-executives whilst recognising this population will have considerable responsibilities. It will be important that non-executives pay close attention to their day-to-day responsibilities and activities to ensure they do not start taking on a quasi-executive role
  • Regarding reasonable steps the review identified that some firms are still to conclude on what ‘good’ looks like. The FCA makes the point that there is no one solution - senior managers should be confident that the steps they take are appropriate and aligned to the complexity of their business. We would advise that solo-regulated firms address this challenge by reviewing their risk and control frameworks and testing their effectiveness for a number of scenarios.

Conduct Rules

  • The review identified that more work is required to align conduct rules training to staff job roles and responsibilities. Whilst firms were providing training on conduct rules the nature of the rules means that generic training will not be as effective role-specific training
  • Firms should expect the FCA to challenge the accuracy and completeness of their conduct rules breach reporting. Therefore, the training in place should provide firms with a high degree of confidence that conduct rule breaches will be identified. 

Impact on Culture

  • Culture is not a new topic for firms. However, the review confirmed that firms are taking more time to discuss, monitor and measure culture – the challenge being to identify the most appropriate metrics
  • It is important that firms do not address SM&CR through the implementation of more controls. They should instead look to ensure the controls are effective and supported by the right behaviours across all levels of the organisation.

Some key takeaways for solo-regulated firms to consider as part of their SM&CR implementation activities are:

  • Establish a framework around what ‘good’ reasonable steps are and take steps to validate effectiveness of the framework
  • Have a clear approach to communicate conduct rules across the organisation and measure the extent to which they have been embedded
  • Consider how the culture of the firm may need to change under SM&CR and ensure the data is available to produce the requisite metrics.

We would expect firms to be well on their way to implementing SM&CR ahead of the December 2019 deadline. However, it is important that firms take note of the messages articulated by the FCA and ensure that their SM&CR frameworks and processes are in line with FCA expectations.