Over the last few days, in advance of the Chancellor’s “Edinburgh Reforms/Big Bang 2.0” speech, there has been a widespread speculation across the Press that the UK Government intends to abolish the SMCR. While this Government has some experience with U-turns, this conclusion is entirely unfounded and unwarranted. Now that Mr Hunt has now actually delivered his speech, it is slightly less premature to attempt a reading of the tea leaves.
As of now the Edinburgh Reforms comprise a disparate 30 item wish list of intentions, touching variously on financial services regulation, sustainable finance, technology and innovation and other related topics. Inevitably framed a Brexit benefit, the list does preview potential changes to the SMCR, an entirely UK initiative that could be changed regardless of our status in or out of the EU. Let’s have a look at the single paragraph that refers to the SMCR.
“Separately, the government and regulators will separately commence a review of the Senior Managers & Certification Regime in Q1 2023. The government will launch a Call for Evidence to look at the legislative framework of the regime, and the FCA and PRA will review the regulatory framework. The government’s Call for Evidence will be an information gathering exercise to garner views on the regime’s effectiveness, scope and proportionality, and to seek views on potential improvements and reforms.”
This paragraph is under the heading “Ensuring a regulatory focus on growth and competitiveness” and should therefore be read in conjunction with the FCA/PRA’s new remit to attend to international competitiveness and growth. It is difficult to see how a SMCR review performed by the FCA/PRA could conceivably result in the Regime’s abolition. The SMCR’s central principle of individual accountability is entirely embedded in the FCA’s approach to consumer protection and has only been strengthened by the new Consumer Duty. There may be a case that the potential criminal liability under the Senior Manager’s Regime acts as a disincentive to international recruitment, but missing out on the best bad actors isn’t a great loss. Given the (diffuse) focus of “Big” Bang 2.0 on the City and wholesale financial services, we believe it overwhelmingly likely that any eventual reforms to the SMCR will be wholly confined to adjustments to the Senior Managers Regime. Refinements to the rules applicable to the Core population will do nothing to increase the competitiveness of large banks and insurers.
As per Mr Hunt’s snippet above, the SMCR will be reviewed in Q1 2023, no doubt these reviews will result in at least some “improvements and reforms”. It is entirely normal and expected that new financial regulation should be revisited to assess its “effectiveness, scope and proportionality”. The general result of these reviews is a slight streamlining of and a renewed focus on the regulation post review. It should also be borne in mind that any support for a review of the SMCR is confined to the Conservative party. There is obviously some chance they may win the next election, although if recent polls are to be believed, such a chance is vanishingly small.
In conclusion, we have a little more information, but very little. What we do have points to potential adjustments to the Senior Manager’s Regime rather than wholesale reform to the SMCR. In the absence of any detail, existing and potential Corterum clients would be well advised to keep both feet fully pressed down on their SMCR preparation and compliance.
Although these rather vague prevarications from Mr Hunt may not be the best example; all relatively new financial regulations are in a constant state of slow flux. This only highlights the need for an expert partner and guide through a constantly shifting regulatory and compliance landscape.