SMCR compliance is complex, with lots of information to absorb, and many implications to to make sure that you’re acting in line with the Senior Managers and Certification Regime (SM&CR). Here’s a good place to start. We’ll help you understand the foundations of the Regime, its history and also how to understand if and when the SMCR applies to your firm.
The FCA divides firms into categories based on several factors, including size, scope of activity and type of operations that they conduct. It uses these categories to define precisely how the SMCR will apply to a particular firm. Understanding these categories, and how your firm is classified is an important first step in beginning your SMCR compliance journey.
Section 59(1) of the Financial Services and Markets Act 2000 (FSMA) states that a person who is performing a “controlled function” in relation to a regulated activity must be approved by the appropriate regulator.
With respect to FCA solo-regulated firms which are subject to the SM&CR, this means that any individual performing an “FCA-designated senior management function” must be approved by the FCA before taking up his or her position. Read our guides to find out everything you need to know about Senior Managers, their duties and responsibilities, and their role in maintaining ongoing SMCR compliance.
The Certification Regime is the set of rules which sits immediately below the Senior Managers Regime. It applies to individuals who are not Senior Managers but who perform “Certification Functions” that could cause significant harm to the firm or its customers. Understanding who these individuals are within your firm, and knowing the rules to which they are subject, is crucial to effective SMCR compliance.
The “Conduct Rules” are a set of high-level standards which apply directly to almost all members of staff within the financial services industry. They are designed to drive cultural change within firms which are subject to the SM&CR. There is an entire section of the FCA Handbook dedicated to the Conduct Rules which provides a lot of useful information on the topic. This is called the “Code of Conduct (COCON)”.
The FCA Directory is a new public register maintained by the FCA. Broadly, it is designed to make information on individuals who perform certification functions both public and accessible. It is different from the existing Financial Services Register (which will continue, but will only contain details relating to Senior Managers).
The reporting requirements relating to the FCA Directory can be found in SUP 16.26, under which all SM&CR firms must submit to the FCA (and keep up-to-date) certain information relating to their “Directory Persons” for publication in the FCA Directory.
Firms must establish, implement and maintain policies and procedures that are adequate for the purposes of complying with the SM&CR regulatory references requirements.
A key feature of the Senior Managers and Certification Regime (the “SM&CR”) is “fit and proper” testing. At a high level, this is the requirement that certain individuals who are subject to the SM&CR must be “fit and proper” to perform their role. It is designed to reinforce the fact that firms must take responsibility for the staff which they employ and to address the phenomenon of “rolling bad apples” – individuals who engage in misconduct in one firm and then move to another firm without disclosing their earlier misconduct to the new employer. Ensuring your employees are ‘fit and proper’ to perform their role is key to SMCR compliance.