With the deadline for Senior Managers & Certification Regime compliance fast approaching, James Moorhouse looks at what firms need to do
With December quickly approaching, many insurance firms will still be checking to see if they meet the requirements of the Senior Managers & Certification Regime (SM&CR).
The programme was designed by the UK Financial Conduct Authority (FCA) as a response to the 2008 financial crisis. At its launch in 2016, the SM&CR applied to banks and building societies. However, it has also been extended to include solo-regulated firms from 9 December 2019. The aim of that is to improve trust in financial services by making senior staff accountable for their actions.
The SM&CR focuses on:
- Identifying senior managers;
- Their responsibilities;
- What happens if they don't meet their responsibilities.
The regime is intended to address the root causes of harm to consumers and market integrity by examining business models, strategy and the culture of financial services. But what does 'good' look like?
For firms to demonstrate that they are compliant, they must look at the culture of the company. Each firm must have an actual purpose. This purpose needs to be constructive and in the best interests of their customers. A good culture should be inclusive and diverse, so that it can benefit from a wide set of opinions and experiences. This should help inspire innovation and relevance across the entire organisation.
Secondly, this purpose needs to be led by managers who can demonstrate strong leadership and good behaviours. There are five conduct rules that set the minimum standards for behaviour across the firm, which are:
- Act with integrity;
- Act with due skill, care and diligence;
- Be open and cooperative with regulators;
- Treat customers fairly;
- Observe proper standards of market conduct.
In short, the SM&CR is a requirement to behave in a professional way. In most cases, firms and senior managers will already be fully compliant with these rules. However, by setting these rules as the backbone of the regulation, all financial services now have a consistent set of standards to measure themselves against. These rules can all be summarised as 'taking accountability'.
CAPABILITY AND COMPETENCE
In terms of certification, David Blunt, head of conduct specialists at the FCA, summarises its purpose as "looking at the people in firms who do really significant roles, roles which could cause real harm to consumers, to markets or to the firm itself", adding: "What we want to do is ensure that firms turn their minds to the capability and the competence of individuals doing those roles."
By placing these responsibilities in the hands of the firm, senior managers will now make sure that 'certified individuals' are fit and proper to do their jobs well. References of at least six years are now required for individuals who hold significant responsibilities. Doing this will prevent those with a poor conduct history from holding roles where they could cause more harm. The certification process will take place every 12 months, to ensure that all certified individuals remain competent in their role. Certified individuals will also appear in an online directory by December 2020, which will give greater visibility of those holding certain roles.
While more responsibility is being placed on firms and individuals, a much healthier culture will develop where good outcomes for customers are taking a greater priority
To ease this transition, there are two provisions to help firms move to the new regime:
- Senior managers and certified individuals must be trained by 9 December 2019;
- Other staff must be trained within the next 12 months. For firms to recognise what they need to know by the implementation date, the key points are:
- Senior managers must identify certified individuals while being accountable to the FCA;
- Certified individuals must hold relevant regulatory references and start training other staff on the conduct rules;
- Everyone else must understand the conduct rules within the next year.
Looking at the SM&CR overall, while more responsibility is being placed on firms and individuals, a much healthier culture will develop where good outcomes for customers are taking a greater priority.
By creating a better culture, whether through embracing diversity, reducing the fear of complaining or setting a minimum set of behavioural standards, employees will have a better idea of what is expected of them. The result being that customers will trust firms that understand them better and buy the products and services they offer.
James Moorhouse is content manager of the CII