What is the Senior Managers and Certification Regime?

After the 2007-8 Financial Crisis, there were calls for more regulation to be applied to not just the banks, but to the likes of lenders, financial advisors and all nature of credit and consumer credit providers and facilitators. It is here that the FCA’s latest regulation in the form of the Senior Managers and Certification Regime, more commonly referred to as ‘SMCR’ (read more) is making the latest round of changes within finance.

In recent months and years, the UK’s Financial Conduct Authority (FCA) have been tightening up regulation across a large number of financial sectors and institutions. Particularly since their introduction in 2014 of swinging legislation and regulations in the payday and ‘high-cost short term loan’ (HCSTL) industries, designed to help protect customers, the FCA have been on somewhat of a mission to clean up the UK’s financial sector.

Previous Attitudes to Financial Compliance and Responsibility

In past times, compliance within financial companies and organisations has relied on usually a single person within the company in question, the compliance manager.

However, as the FCA have now pointed out, the culture within finance was such that only the compliance manager was ultimately responsible for all levels of compliance and regulatory alignment with the FCA. This previous culture meant that although these managers were in charge of ensuring strict rules were followed at all times, they were in reality, incredibly disconnected from the process.

For example, in a company where salespeople and even brokers and advisors are providing crucial financial advice to consumers, although the customer-facing people in the business would be aware of ‘compliance,’ they would always refer to the compliance manager. Moreover, it has always been the job of the compliance managers to find, identify and address all matters relating to their remit. This led, over many years to a culture of blaming and ducking responsibility.

Changes Brought in by SMCR

SMCR changes the past faults of the blame culture within compliance for all things financial. Ultimately, under this new regime, everyone in the company, from senior levels to management level and further, is now responsible to a more suitable level for matters relating to compliance within their areas. Also, individuals within all qualifying businesses must undergo training, often in the form of online e-learning so that there is little doubt when it comes to who needs to know what, when, why and how.

The need for this new regime really comes from the past failings of the industry where although people and professionals were for the most part ‘trying to do the right thing,’ they were not accountable for failings in compliance.

Additionally, when it comes to failings and even potential breaches of such compliance, there is now a clear pathway of accountability and responsibility that can be referred to by both the FCA as well as the company in question.

Who Qualifies for This New SMCR Programme?

Most firms and companies in UK financial services qualify for the new regime and as such, will need to ensure staff are trained and clued up to the necessary levels. Anyone offering any form of finance, financial advice, brokerage in finance (for example mortgage brokers) and consumer credit will need to abide by this regime. This therefore includes the likes of:

  • Mortgage and property finance brokers and providers (apart from banks)
  • Firms offering customers any form of credit, for example car credit and dental credit
  • Investment managers and advisers
  • Financial product distributors
  • Insurance brokers

Importantly, those who currently qualify for and fall under the Appointed Representative (AR) regime, are still covered by their existing arrangements under that scheme. Also, UK banks are subject to the Senior Managers Regime, a different regime, tailored to their requirements and specific considerations, so will also not need to be covered as yet by the introduction of SMCR across the UK.