It replaces the current Approved Persons regime. It represents a major shake-up of financial services regulation and will fundamentally change the way that FCA-regulated firms operate and engage with the regulator.
1. Type of firm
The SMRC will apply to all FCA-regulated firms from December this year but different requirements apply depending whether the firm is a 'limited', 'core' or 'enhanced' firm.
2. Who is covered by the Senior Managers regime?
Under the SMCR, "senior managers" are individuals who perform one of the senior management functions designated by the FCA. These replace the 'significant influence functions' under the old regime.Senior Managers will need to be approved by the FCA to carry out their senior management function.Other staff currently requiring FCA approval will now be covered by the Certification Regime (see below).
3. Responsibilities of senior managers
Once a firm has identified the individuals performing senior management functions, it must assign them all the "prescribed responsibilities" set out by the FCA which are most closely associated with their role. These must be set out in a written 'statement of responsibilities'. Enhanced firms will also be required to produce a responsibility map showing how the prescribed responsibilities have been allocated.
4. Duty of responsibility
Each senior manager within the firm is subject to a statutory "duty of responsibility". This means that, if a firm breaches any FCA requirement, the senior manager responsible for that area could be held personally accountable if they did not take "reasonable steps" to prevent or stop the breach.
5. Certification regime
The certification regime will apply to staff who are not senior managers but whose role means it is possible for them to cause significant harm to the firm or its customers/clients.Under the certification regime, firms are required to certify that such individuals are fit and proper to carry out their certification function on hiring them and then annually.
6. References – Obtaining and giving regulatory references
When hiring a senior manager, NED or person carrying out a certified function, the firm must obtain a regulatory reference covering the last six years of their employment (whether with an authorised firm or otherwise).Reference requests under the regulatory reference regime must be completed on a mandatory template, contained in the FCA Handbook.
Firms will also need to comply with onerous obligations when giving references for senior managers and certification staff. In many cases, this will involve fine judgements about what should be disclosed, particularly if any internal investigation was not concluded.
7. Conduct rules
All staff within FCA-regulated firms (other than those in purely ancillary roles such as security staff and receptionists) will need to comply with the FCA's Conduct Rules.Firms will need to ensure that staff receive appropriate training on these requirements.
8. Notifications to the FCA
If a senior manager is found to have breached the Conduct Rules, or a finding is made that they are not fit and proper to perform their function, the firm will need to notify the FCA.In the case of certification staff, if the firm considers that the person is not fit and proper to perform their certified function, the firm must not renew their certification.
9. Employment contracts and policies
Firms will need to update their employment contracts and staff handbooks to reflect these new requirements.Policies on document retention, internal investigations, disciplinary proceedings and related matters will need to be reviewed and updated.
10. What action can the FCA take?
The FCA can impose fines and even custodial sentences for serious breaches of the rules imposed by SMCR, and since the senior managers' regime has been in place for banks there has been a steady increase in fines against individual defendants as opposed to firms, in line with the theme of individual accountability. For example, the FCA fined the CEO of Barclays £321,000 in 2018. Recurring themes in recent fines include market abuse, financial crime and anti-money-laundering, as well as lack of skill, care, due-diligence and fitness and propriety.