Financial services firms should act now on the Senior Managers & Certification Regime (SMCR) if they have not already, and try to see the new regulation as an opportunity to get their house in order.
Iulita Georgieva, financial services risk consultant at KPMG, said most of her clients had already set up their SMCR steering committees, with the most successful examples including representatives from across departments including the business function, human resources, and legal/compliance.
“We encourage our clients to have someone either from the board or the executive committee to really drive that change,” Ms Georgieva said, speaking at PAM Insight’s Annual Compliance Lunch.
“SMCR by nature is a very personal regime as it carries individual accountability—that’s the whole purpose: To hold those right at the top to account. To have a member of leadership who can spearhead implementation and channel the message makes it a lot easier for people on the ground to understand what we’re trying to achieve here.”
The deadline for asset and wealth management firms to be SMCR compliant is 9 December 2019, though it has been in force for banks since March 2016. Its aim is to protect consumers and the integrity of markets by setting minimum standards of conduct for most staff, increasing senior manager accountability, and strengthening governance structures.
While the FCA would certify all senior manager function holders (SMFs) initially, it was then up to the firm to carry out annual assessments of managers’ fitness and propriety, meaning HR needed to be closely involved.
Ms Georgieva said it was an opportunity for firms to review their overall governance structure, rationalise committees, leverage what is already in place and think strategically to address other incoming regulatory change likely to affect the business.
“Think strategically about all the other changes that are happening. SMCR is just one piece of regulation, there is a lot of competing priorities. One of the other things I’ll draw attention to is the Asset Management Market Study, we know there’s a requirement for authorised fund managers to perform value assessments which is linked to a specific SMCR Prescribed Responsibility, which will be assigned to the chair.”
One of the most asked-about aspects of SMCR has been the concept of “proportionality”, with some firms having “core” requirements and some “enhanced”. However, only about 300 of the 47,000 affected financial services firms fell into the latter category.
Therefore, Ms Georgieva said one of the most common questions she is asked by clients is “So what does proportionality mean for a core?”.
“The message [from the FCA] is: Don’t reinvent your business model in order to fit SMCR.
“[However] another message that I don’t agree with is that SMCR doesn’t require an uplift in internal operations and documentation. We do not tend to operate on an entity level, we have a business unit frame of mind, and if you have more than one legal entity that might cause friction.”
Ms Georgieva advised SMFs to look at the information currently reported to them, and ask themselves whether they were satisfied everything was overseen adequately. Next, look at the interconnectedness with other SMFs/functions and assess whether there are any gaps across the organisation.
“A lot of clients have been worried, do they need to go into every meeting and write their own notes and challenge every point? I would definitely discourage that from happening and any cottage industry being created from paperwork,” she said.
Firms may be faced with with managers’ demands for pay rises in response to the regime. However, during the implementation among banks, major remuneration increases didn’t ensue, Ms Georgieva said.
The FCA’s response to these concerns was that mangers should already be doing the things required by SMCR, and the regulation was merely formalising their accountability.