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SM&CR, transitional phases and what you need to do

Guest authors

The Senior Managers and Certification Regime came into force for FCA solo-regulated adviser firms in December 2019. We highlight the main actions firms may need to take over the next 12 months and beyond in order to comply with the rules.

The Senior Managers and Certification Regime (SM&CR) first came in to force for the banking sector back in 2016 to help improve the industry's reputation with the public.

It replaced the FCA's Approved Persons Regime and its overall objective was to provide better protection for customers.

The FCA then took the decision to extend SM&CR to the rest of the financial services industry, including FCA solo-regulated adviser firms.

SM&CR was implemented for adviser firms at the end of last year, on 9 December 2019.

Although complying with SM&CR may appear complex for firms at first, the end goal is simply to make sure there's better accountability within adviser firms. The FCA has stated that SM&CR is about "establishing healthy cultures and effective governance in firms by encouraging greater individual accountability and establishing a new standard of personal conduct".

The FCA has also said that the primary purpose of SM&CR "is not enforcement but to encourage firms and their staff to take greater responsibility for their actions".

SM&CR includes more prescribed responsibilities for staff compared with the Approved Persons regime:

  • The Senior Managers Regime applies to the most senior management team within a firm, and
  • The Certification Regime sets out responsibilities for other specific, roles within a firm that can have a significant impact on customers

Conduct rules under SM&CR

The conduct rules under the regulation are the basic rules that will apply to almost every person who works in financial services. The rules are about improving behaviours and include clauses such as ‘acting with integrity' and ‘treating customers fairly'..

SM&CR now applies to FCA solo-regulated firms

As SM&CR took effect for FCA solo-regulated adviser firms at the end of last year, your firm should have already

  • identified the senior managers and certification staff
  • provided training on the conduct rules under SM&CR
  • reviewed and updated relevant contracts of employment
  • established a process to secure, provide and update regulatory references
  • established a process to investigate potential conduct rules breaches and where required report them to the regulator

To support firms with their ongoing responsibilities under SM&CR, two transitional periods are now in place, with key actions required during both phases:

Phase 1

In this first, 12-month transitional phase, until 9 December 2020, FCA solo-regulated firms will need to:

  • train all other conduct rules staff
  • assess existing certification staff
  • identify and assess newly employed certification staff for suitability

Phase 2

Once this first transitional, 12-month period is over, from 9 December 2020, firms will need to:

  • make sure that conduct rules under SM&CR apply to all relevant staff
  • make sure initial certification assessments are completed
  • meet ongoing requirements to train new staff in the conduct rules under SM&CR
  • recertify certification staff as fit and proper at least once a year
  • submit data to the FCA for its directory of key people working in financial services

"SM&CR is about the principle of stepping up and taking accountability every day from here on, not just about ticking the box on implementation of the regime," said Jonathan Davidson, the FCA's Executive Director of Supervision – Retail and Authorisations on SM&CR's implementation day in December. "Today is just the starting point for what firms need to do to live the spirit of the regime."

For the information you need to support you and your firm through SM&CR's transition periods, go to the FCA's rules and guidance summary for SM&CR.

The views expressed in this blog should not be regarded as financial advice.

Standard Life accepts no responsibility for advice that may be formulated on the basis of this information.

Views are SLA's summary of the FCA's SM&CR requirements and individual firms should review the requirements themselves to assess the impact on their business and staff.