UK: Implementing SMCR - Considerations For Wealth And Asset Managers. Lessons From Our Roundtable

Last Updated: 1 October 2018
Article by Celyn Armstrong and Katharine Harle

On 20 September 2018, Dentons and Baringa Partners co-hosted the second in our series of roundtable discussions on the Senior Managers and Certification Regime (SMCR), which was attended by wealth and asset management firms ranging from "limited" to "enhanced" scope. We were delighted to be joined by David Mapplebeck, EMEA Chief Administrative Officer of Northern Trust, who shared some of his experiences of the implementation process in banks. 

We had a lively and engaging discussion about some of the trickier aspects of the regime, focusing first on governance structure and senior managers, before turning to the practicalities of operating certification processes.  

We have summarised some of the key considerations emerging from the roundtable:

Preparation and planning 

Attendees recognised that implementing SMCR would be a substantial project, requiring careful planning. We discussed the importance of HR being closely involved, and of active sponsorship and support by the board and senior executives – SMCR is "not just a compliance project" but will need to be embedded permanently into the way firms manage themselves in future. 

Impact on governance

Some attendees expressed concerns about whether senior managers would feel obliged to record unnecessary challenges to board decisions, and how this would impact board collective responsibility. Although there is a clear tension between making individuals accountable for specific areas and the doctrine of collective responsibility, the FCA's view is that SMCR does not conflict with that doctrine. SMCR is not a strict liability regime so, in principle, if a senior manager has clearly expressed a contrary view and is overruled by a board decision, he or she will have taken reasonable steps and would not be sanctioned.

There is no "one right way" to allocate prescribed responsibilities, though it will often be appropriate for the CEO to hold those relating to the firm's responsibilities under the Senior Managers Regime and the Certification Regime. However, it is important for the allocation to reflect the reality of who is actually responsible for the relevant area. In some ways it could be more challenging for core firms than for those subject to the enhanced regime, as the former could not appoint "Other Overall Responsibility" senior managers (SMF18s).

Groups

Firms would have to carefully think through the effect of SMCR on group governance and management arrangements. Some firms were considering strengthening their legal entity governance arrangements to ensure that group executives did not need to be appointed as senior managers. Others were thinking about making use of the SMF7 "Group Entity Senior Manager" function, though this only applies to enhanced firms.

Post-implementation ownership of SMCR

It is critical to the success of an SMCR implementation project to think clearly about how the firm's responsibilities will be managed as "business as usual" post implementation. In larger firms it may be appropriate to create a central SMCR function within the chief executive's office. In other firms SMCR is more likely to be the responsibility of a specific function such as HR or Compliance. In any case it is essential to coordinate the different functions and business lines that must work together to fulfil SMCR obligations.

Training

Attendees discussed how to meet the obligation to train individuals on the conduct rules, which by FCA guidance includes giving them a deeper understanding of the practical application of the specific rules that are relevant to their work. Although this requires an element of bespoke content, it is preferable to avoid having a multiplicity of training modules. Instead, the focus should be on making training interesting and relevant. Firms should be creative about engaging staff through alternatives to standard desk- or classroom-based training sessions. 

The Directory

Although the industry had been positive about the idea of a directory of certified persons (and senior managers) (the Directory) to replace the Financial Services Register, attendees expressed concerns about the proposals in the FCA consultation paper. Although the need for the Directory is understood for staff who engage directly with clients, it is less clearly required for other certified roles, such as managers of certified persons. The proposals for administrative fines where a submission is more than a day late was seen as unrealistic, especially where a certified person's role had changed on short notice.

To view the full article please click here.

This Insight alert has been co-authored by Dentons and business consultancy Baringa Partners.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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