MCO Conduct Risk solutions help financial services firm address the regulatory obligations of SMCR. 

What is SMCR

Senior Managers Certification Regime, often abbreviated to SMCR or SMR, is a regulation which was implemented in March 2016 by UK regulators, namely the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). The legislation was originally aimed at extending regulatory accountability to the senior managers within the top banks in an effort to curb corruption and enforce an increased culture of compliance in the UK's financial services market. In particular, the Senior Manager and Certification Regime aimed to establish a framework that would;

  • Focus accountability on a narrower number of individuals at the top of the bank
  • Encourage senior individuals to take greater responsibility for their actions
  • Make it easier for both banks and regulators to hold individuals to account

Introduction to the Senior Managers Certification Regime

The SMCR's introduction in the UK was driven by a perceived lack of individual accountability and governance failings post-financial crisis. For most solo-regulated firms, the SMCR was applied in 2018, and a similar regime for banks and insurers has applied since 2016. The original SMCR deadline in December 2020 was extended to March 31 due to Covid-19, which gave senior managers and staff extra time to prepare.

The foundation of the Senior Managers Regime is the requirement for firms to submit a statement of responsibility. The statement of responsibility sets out the complete list of senior management functions (SMFs), covering every significant aspect of a firm's operations, and senior managers must accept its responsibility for managing the role.

SMCR and Covid-19

Due to Covid-19 and its impact on firms, the FCA extended the deadline to March 31 2021 to give firms time to comply with SMCR requirements and to:

  • assess the fitness and propriety of their Senior Managers
  • train staff on the Conduct Rules
  • to report Directory Person data

During the announcements of the extended deadline in late 2020, the FCA suggested that firms continue with their SMCR implementation, and if possible, aim to complete these activities before the extended deadline. In addition, the FCA requested firms to record and document the process to assure that these firms needed an extension.

On-Demand Webinar: The UK SMCR & Enforcement Investigations

Similar Regimes Across the Globe

Since the implementation of SMCR in the UK, regulators have increased focus on governance, culture, and individual accountability for financial services in Ireland, Hong Kong, Australia, and Singapore. Although countries have different regimes and regulations to tackle misconduct and poor behaviour, similar regulations focus on improving individual accountability through a healthy culture and effective governance. The list of countries with similar regimes is still small, but it has been increasing in the past two years. There is a tendency to extend to other countries as regulators see the UK as a country model for financial services regimes.

  • In Australia, the regulator implemented new measures on The Banking Executive Accountability Regime (BEAR)
  • In 2020 Singapore proposed guidelines on individual accountability with a focus on the five high-level outcomes that financial institutions should achieve to promote the responsibility of senior managers
  • Malaysia has proposed a map of senior individual responsibility that is similar to current Hong Kong's MiC regime
  • Ireland is introducing the Senior Executive Accountability Regime (SEAR).

Lessons from SMCR Implementation

During the implementation process, firms learnt a few valuable lessons for firms that are still working on implementing the changes required by SMCR. From conversations with these firms, we list below these lessons.

Start early: don't under-estimate the lead time required

Although the SMCR essentially replaces the Approved Persons Regime, it does much more than that. The SMCR requires a different mind-set and considerable changes to corporate governance frameworks, employee assessment and breach reporting infrastructures, employee training and, as a consequence, behaviours across the firm. Behavioural change doesn't happen overnight. It takes time and reinforcement.

Begin at the top: the FCA key message on the regime is the "tone from the top"

The FCA key message on the regime is the "tone from the top".
Your communication and training plan will need to touch every area of the firm – from the board down. The SMCR broadly introduces three categories of employee. Each type will require a further communication and training approach:
• Senior Managers
• Certified Persons
• Other Conduct Rule Staff

Be positive: framing is essential

Be aware that many employees will be anxious about the regime, in particular the consequences of Conduct Rule breaches and regulatory references. Experience shows that framing is key to the delivery of a successful communication and training strategy and to sustained behavioural change.
Try to avoid negative messaging and focus on the positive. Emphasise that the firm welcomes the SMCR, is good for business, clients and the industry and, in any event, is in line with the firm's values and principles and what is currently expected of employees.

Think about infrastructure: the SMCR means building new infrastructure

Notable examples include changes to the corporate governance framework and recruitment and appraisal processes and the introduction of Conduct Rule breach reporting and annual Certification processes.

Training and communication options: good training and communication are central to SMCR

Your strategy is likely to cover several stages, from communicating the basic ethos and themes through to role-specific training on the Individual Conduct Rules.

Do you have a solution to meet the regulatory obligations of SMCR or similar regimes?

Framing, training, communication, work closely with HR are crucial areas to look at during implementation and post-implementation of the regime. Another essential aspect in which technology or process the firm will use to monitor changes, report and comply with the regime. Some firms might adopt a manual approach with the use of spreadsheets, but it can lead to errors, lack of control and defeat the initiative's purpose.

Make sure details remain up-to-date

Manual processes are indeed a risky approach when you need to keep the information up to date, meet annual timelines, and ensure the recording of all data across different information sources.
Implementing the SMCR is a continuous process and needs attention from now on as firms should be considering how their implementation can be tested and enhanced.

When firms decide to adopt technologies to reduce the administrative burden of the regime, compliance and human resources are left with more time to manage the more complex and strategic parts such as enhancing the implementation, training, communications, design and review frameworks, hiring and sourcing the right talents for senior managers' roles, and more.

Have questions? Speak to our experts