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SM&CR – the “new culture”: analysis from compliance consultant Tony Catt

Compliance Consultant Tony Catt uses his personal experience to take a look at the integration of the SM&CR for all regulated firms and what outcomes it is trying to achieve as a result.

This regime has been in position with the banks and insurance companies for some years now. The major effect for those institutions was the introduction of “formal” scopes of responsibilities for Directors and Senior Managers. It brought in accountability and focus to the roles of individuals. Whilst this could be seen as a stick to beat people with, it also acts as protection to those individuals as it clearly states where their duties start and stop.

The extension of SM&CR

It was introduced to regulated firms of all sizes in 2019. The start date of the regime was 9th December 2019 with a year for transition, which was then extended to March 2021 because of Covid.

As is ever the case, many firms left it to the last minute to register their Directory Persons (yuck – there must be a better name that could be given) and also to provide the training on Conduct Rules.

The Certification Regime passed the onus from the FCA back to firms in relation to due diligence on recruitment and ongoing supervision to ensure continued fitness and propriety for the Directory Persons to continue to be registered. Also, there is a specific edict that firms need to keep the Directory up to date with accurate information. Personally, I am delighted about this as it provides work for me as a compliance consultant!

However, all this is secondary to the adherence to the Conduct Rules. In fact, I have set up a Powerpoint presentation to provide the SM&CR training for some of my IFA client firms.

The long and winding road

In order to raise the levels of trust in Financial Services providers and products, the Financial Conduct Authority (FCA) has tried many different projects over the years which are aiming to increase the likelihood of good outcomes for customers.

Those initiatives are:

  • Treating Customers Fairly(TCF)
  • Retail Distribution Review (RDR)
  • Markets in Financial Instruments Directives 1 & 2 (MiFID 1 and 2)
  • And now the Senior Managers & Certification Regime

It is a puzzle to me that so much effort from the regulator seems to be needed to get advisers to behave honourably to clients.

What’s it all about?

The SM&CR aims to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence.

The 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.

As part of this, the SM&CR aims to:

  • Encourage a culture of staff at all levels taking personal responsibility for their actions
  • Make sure firms and staff clearly understand and can demonstrate where responsibility lies

It is intended that the training for SM&CR is not simply a bit of training undertaken to tick a box, but the adoption of a culture within the organisation.

  • The culture of an organisation should be led by good practice within the management.
  • But should be adopted by all personnel – management, advisers and administrators.
  • The culture of the organisation should be constant good practice.
  • How people should behave even when their boss is not looking.

As such, the Conduct Rules are very basic behavioural points and should not be news to anybody working in any business. They should represent minimum standards of conduct.

Individual Conduct rules

  • Rule 1: You must act with integrity
  • Rule 2: You must act with due skill, care and diligence
  • Rule 3: You must be open and cooperative with the FCA and other regulators
  • Rule 4: You must pay due regard to the interests of customers and treat them fairly
  • Rule 5: You must observe proper standards of market conduct..

 

Senior management Code of Conduct Rules

  • Rule 1: You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
  • Rule 2: You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system.
  • Rule 3: You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively.
  • Rule 4: You must disclose appropriately any information of which the FCA would reasonably expect notice

 

The main takeaway from this article should be that the FCA wants the SM&CR Conduct Rules to represent the culture of your organisation and your own personal behaviour when you perform your duties. The FCA expects to see proof that training has been provided on the Conduct Rules and that it has been revised.

Obviously, the main hope is that firms and individuals will embrace this culture with the result that clients will receive consistent and constantly good outcomes from the advice process.

How difficult can it be?

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