We are now very close to the 9th of December and the implementation of the SMCR extension. During our recent webinar "Five key steps towards SMCR compliance", we asked the attendees how ready their organization is for the 9th of December.
And surprisingly 76% of the respondents stated that they are nearly ready, against 22% saying they still a lot to do following 2% who are completely ready. We thought it was good news compared to recent reports saying that most firms are not prepared to meet the deadline.
To help the ones who are not fully confident just yet, our compliance specialist Liz Hornby gave some clarification in our recent webinar on what the new regime is expecting from solo regulated firms and actions that you should take to make sure your firm is prepared.
SMCR Context
The SMCR wants to ensure that employees at all levels are taking responsibility for their actions. The regime is expecting a “statement of responsibility” followed by staff well trained and educated on the new code of conduct. In the past, when the financial crisis began, individuals in the industry hadn’t been called to account or taken responsibility for the failings. A great number of conduct scandals were brought to the press and with all that happening the FCA saw the need to bring the SMCR, focusing on good conduct, personal accountability, and responsibility.
The FCA has been articulating better what good conduct looks like after all cases of poor conduct during the crisis period. Liz Hornby, Principal Consultant at Eukleia highlighted during the webinar some aspects of focusing on good conduct instead of poor conduct:
“It's important to focus on good conduct. It's easy to focus on bad conduct when you're training individual conduct rules. However, it's crucial not only articulate what bad looks like, but also to articulate what the expectations are around good conduct within the firm. We should celebrate and call out when it happens. We are trying to focus on that and be positive to encourage the right sort of behaviors within organizations.”
All that should drive us to look at SMCR positively for the industry: “…It is good for business when employees buy into a firm’s purpose, feel personal accountability and are inspired to speak up and listen.” - Jonathan Davidson, the FCA’s Executive Director of Supervision for Retail and Authorisations.
SMCR Overview
To better understand, we can see the SMCR as a pyramid with three main elements: Senior Managers Regime, Certified Persons Regime and Individual Conduct Rules.
At the top of the pyramid the Senior Managers Regime that operates in the UK. They have tougher duties and standards with high levels of accountability. We're talking about people who control, the business right at the top. Senior Managers will be responsible:
- If the business of the firm is being controlled effectively
- If the business of the firm does not comply with the standards of the regulatory system
- For ensuring that any delegation of your responsibility is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
- For disclose appropriately any information of which the FCA or PRA would reasonably expect notice
On the second level, we have the Certified Persons Regime, which is a potentially wider group than you have under the Approved Persons Regime at the moment. It includes people who could do significant harm to clients or markets, such as HR and people in your operations.
At the bottom level we have the Individual Conduct Rules, these are the industry-wide conduct standards that apply to a much wider population, beyond people who are senior managers and certified persons to everyone else.
All these changes are likely to reduce the FCA criticizes firms for:
- Not adequately tailoring training to job roles
- Using their values to articulate and communicate the Conduct Rules without clearly mapping those values to the rules
- Being unable to explain with confidence what a Conduct Rule breach looks like in the context of their business
And improve conduct within the organizations benefiting business, clients and the industry as a whole.
If you want more details about SMCR watch our on-demand webinar, where Liz Hornby from Eukleia goes through a checklist with more details, giving you five main steps that you must take before the 9th of December. If you feel you have got a lot to do to meet the deadline this webinar will be a good touch point and might give you some direction.
