The clock is ticking ahead of the 9th December implementation date for this FCA ruling. But how ready are you? Compliance consultant Tony Catt reminds financial planning firms that now is the time for action in order to ensure compliance with the new regime and gives some pointers on what needs to be considered and implemented
With much commentary already been written on this topic, this article is to serve as a reminder and prompt for action by advice firms with the deadline rapidly approaching. On the one hand advisers will know that this regime is due to be implemented right across the advice sector from 9th December 2019, but on the other, there are still likely to be some advisers who have actually done nothing about preparing for it. For many small firms, there may not appear to be much to do, but in this respect advisers underestimate the work involved at their own risk.
As an overview, the Senior Managers & Certification Regime (SM&CR) is a catalyst for change – an opportunity to establish healthy cultures and effective governance in firms by encouraging greater individual accountability and setting a new standard of personal conduct.
So, from December, the FCA is extending the SM&CR to solo-regulated firms. By doing this, the FCA aims to reduce harm to consumers and strengthen market integrity. This presents a unique opportunity for the regulator to set a new standard of personal conduct for everyone working in financial services.
December’s extension of SM&CR is set to affect almost every solo-regulated firm, from very small firms (including sole traders and limited permission consumer credit firms) to some of the largest global firms.
The SM&CR will apply to all FSMA authorised firms. It also applies to branches of non-UK firms with permission to carry out regulated activities in the UK.
The FCA is extending the SM&CR in a way that is proportionate to the size of the firm.
To comply with the new regime, firms may need to take a number of steps, such as adjusting their governance arrangements, clarifying areas of responsibilities, identifying and eliminating gaps, and recording and evidencing their review processes.
In addition to the roles and responsibilities that apply to senior management, firms will also need to identify their certified persons; these are persons who could potentially cause harm to clients, employees or the firm itself.
Certified persons will not be directly authorised by the FCA, but firms will need to identify any roles that include investment advisers, wealth advisers, pension transfer advisers, proprietary traders or any person who supervises or manages a certified function, just to name a few.
To put it simply, firms will need to ensure that the right person is performing the right role within the business and that they are properly trained and qualified to perform that role.
Senior managers and certified persons will need to understand how the new code of conduct rules that will apply to them specifically and will be required to undergo appropriate training before the commencement of SMCR.
What advice firms need to do:
- Determine the firm classification – limited scope, core or enhanced – and understand how SM&CR applies to them
- Identify senior managers, allocate the appropriate responsibilities and produce ‘statements of responsibilities’
- Identify certified staff, ensuring that mechanisms are in place to train, assess and certify them as competent, as fit and proper
- Train senior managers and certification staff on the new conduct rules
- Review ‘statements of responsibilities’ and terms of reference of governance and committees
As ever with regulatory procedures and processes, the most important thing for firms to do is to store the evidence, and be able to produce that evidence, demonstrating competence under fitness and propriety, of knowledge and skills through testing, file reviews, skills assessments and ongoing CPD, and so on.
The Directory is a new public register that enables consumers, firms and other stakeholders to find information on key individuals working in financial services.
The current FCA Register is to be adapted/replaced by the new directory. Originally, the FCA was considering disbanding the Register, but on consultation it received a lot of feedback about the importance to consumers who relied upon the register to check the status of advisers.
When the FCA’s Directory opens for submissions, firms will be required to submit the details of their senior managers, certified individuals, as well as other important individuals who undertake business with clients and require a qualification to do so.
Firms must also ensure that the details remain up to date.
Banking firms and insurers have been submitting data as of September 2019, while all other firms can start submitting from 9th December 2019.
The FCA is looking to build a uniform structure to try to provide effective consumer protection throughout financial services. The application of SM&CR will be proportional, dependent on the size of firms. Senior managers will have specific spans of duty and responsibility. Senior Managers can be held to be liable for any breaches within their span of responsibility. This personal liability is likely to focus the activities of senior managers and therefore lead to better practices.
Firms must not underestimate the amount of work that will be involved in getting to the stage where they are compliant for this new regime.
I’ll repeat the date again, that implementation is due to take place on 9th December. It is strongly advised that firms to have everything in place as soon as possible rather than to experience the perennial rush to meet regulation deadlines that is bound to happen as the deadline approaches.
About Tony Catt
Formerly an adviser himself, Tony Catt is a freelance compliance consultant, undertaking a whole range of compliance duties for professional advisers. Contact Tony [email protected] or call 07899 847338.