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It's been on a slow burn since late 2022, but finally SMCR reforms are on the move. The changes will come over time, not least because some can't happen without legislation, but there are some immediate regulatory updates – what the regulators might like to think of as "quick fixes", and we can at least see the future direction of change even if we don't have certainty on everything.
Overall, we're looking at a regime that can be more flexible in future, by removing requirements from law and putting them instead in the hands of the regulators. Quite how different the initial regulatory regime will be remains to be seen but to start with, firms can benefit from some changes that are already within the regulators' power to make.
Here's a checklist of what's been done and what's coming soon, and a look forward to the next phase.
Already implemented: before the April policy statement
The regulators have been working for some time to make applications – including applications for SMF positions easier, and to assess applications more quickly. So, already the FCA has streamlined some forms, and is determining nearly 95% of applications within the proposed (and not yet official) 2 month deadline. The regulators will carry on their work of further simplifying forms, while reducing the supporting documents required and giving more clarify on expectations.
Now in place: from 24 April
| What? | How? | Impact |
| Extension of "12 week rule" |
Firms now have 12 weeks to submit applications for emergency cover for SMF functions, whereas previously the regulatory approvals were needed within that period. And where a non-SMF covers a role during an emergency, Senior Manager Conduct rules will apply to that individual, and breaches will need to be reported as soon as possible. |
The extension is better than the previous position, but firms would have preferred 6 months as even 12 weeks will often not be long enough to source an appropriate replacement. |
| SMF and PR clarification | More guidance on SMFs 7 (FCA and PRA guidance differs on this point) and 18 and 22 (designed to stress the necessary seniority for individuals holding these positions). And guidance on which SMFs are likely to be appropriate for being given responsibility for specific prescribed responsibilities (PRs), and on allocating and splitting prescribed responsibilities (again, to clarify that the person holding it should be the most senior person responsible for managing the particular area). The previous guidance had discouraged splitting the PR, but the new guidance is clear that there will be times when this is appropriate – although it will rarely be appropriate to split any one PR between more than 2 managers. |
If the intention of the guidance was to reduce applications for these SMFs, firms are not sure it will work, but they did welcome the clarity. Firms query whether the changes in guidance on allocation of PRs is really necessary, pending what might happen in Phase 2, but the FCA wanted to give extra flexibility now. |
| Certification | Clarifications on what is expected when recertifying staff, and flexibility on how to keep records. | Less bureaucracy and less paperwork, which will save time and make record keeping earlier, as checks can be incorporated into the annual appraisal process and records kept electronically. |
| Directory | Time to update most information increased to 20 days, but staying at 7 days for updating the Directory about leavers. | The increase from 7 to 20 days gives firms more time to build non-critical notifications into BAU, but ideally they wanted one single deadline. That said, they did feel 7 days was the right time for leavers. So systems and controls will remain unchanged in terms of actions firms must take when relevant staff leave, but if firms wish can be more relaxed on timings of other notifications. But, if firms prefer, they can continue reporting all changes within 7 days if they prefer. |
| CRB checks |
No longer needed for internal or intragroup moves. Otherwise validity period extended to 6 months. |
This has greatly pleased firms, because the previous 3 month rule often meant that CRB checks firms got as part of their recruitment process would run out and need to be done again. |
| Regulatory references | Reduction in time to respond to requests for references, from 6 weeks to 4. | Firms like this change, because many had complained that waiting 6 weeks slowed down recruitment. Many called for the new limit to be a rule rather than guidance. |
| Statements of responsibility and management responsibility maps | Firms will have up to 6 months to notify changes – and notify only once if more tha one change happens during that period. |
Again, this enables firms to embed notification of changes into their BAU cycles. Some firms had said they would prefer to report changes as soon as they were made, and if they wish, they can continue to do this. This is also subject to more possible change as part of the Phase 2 considerations. |
| Conduct rules |
Clearer guidance on notification requirements, regulatory references where there has not been disciplinary action, and application of senior manager conduct rules. The new guidance includes advising firms that where employees leave before the firm completes its investigations into suspected misconduct, the firm should consider matters such as it the suspected conduct would be material enough and relevant to an assessment of fitness, if true, while balancing the fairness and permissibility of disclosing the information under other laws. It also clarifies that firms should not include information where they have not taken sufficient steps to verfy it, and references should not refer to unproven allegations or mere suspicions. The changes also clarify what is required of appointed representatives who are asked to give references. |
Generally firms will be happy to have additional guidance, but it hasn't altogether alleviated concerns about the risks of disclosing suspected misconduct. The additional clarity on what needs to be reported and under what rules should reduce some of the administrative burdens on firms. |
Coming soon: 10 July
| What? | How? | Impact |
| Higher limits for "enhanced scope" | Increasing by 30% most thresholds that bring firms into the enhanced category, and a mechanism that will update thresholds every 5 years. |
This will clearly benefit firms who will now fall to be core firms – but some queried whether the increase should have been even higher. The changes do also come with the proviso that both regulators will look at the thresholds futher in Phase 2. |
| PRs for SMF 18s | Flexibility so SMF 18s can hold any PR. | For solo-regulated firms only |
| Certification | Removal of overlapping multiple certifications. | While in principle firms welcome the changes, they expressed concern that removing duplications would be significant work, and there were likely to be further changes in Phase 2. The FCA will deal with this by removing the duplications itself. |
And coming on 1 September
Finally in terms of known changes on specific dates, minor SMCR-related changes to the Conduct Rules that relate to non-financial misconduct will take effect with the wider changes, on 1 September.
What's in Phase 2?
Significant further changes will come, all of which are again intended to create flexibility and remove duplication.
| What? | How? | Impact |
| Removal of certification regime from law | Repeal of relevant statute, but instead giving regulators power to create their own regime within their rules. | It's not really accurate to call this the "removal" of the regime, because there will still be regulatory requirements and expectations on key staff within firms who are not SMF holders – but we don't know yet what these will be, so can't yet assess the impact on firms. |
| Fewer SMFs needing approval | Giving regulators power to specify that firms just need to notify them of some SMF appointments, without the FCA needing to approve them. | Remains to be seen which roles will be affected. The advantage to firms will be that they will no longer have to build in the time for FCA approval. |
| Firm ability to apply for limited SMF approvals | Change to law in order to let firms request SMF approvals subject to time limits or other restrictions. | Hopefully will clear some log jams where currently regulators must make a full assessment and then can suggest limitations – if firms can proactively suggest them this may speed up the approval process. |
| More flexibility in SoRs | Removing requirements for what SoRs should cover from legislation, so the regulators can set their own proportionate requirements. | There is no indication yet of the extent to which the regulators plan to change the current requirements. |
| Less prescription on Conduct Rule compliance | Removing from legislation the requirement to report breaches of Conduct Rules and to give mandatory training | Again, to be confirmed what regulatory requirements there will be but it is unlikely that firms will change their training programmes. |
| SMCR equivalent changes for FMIs | Legislative changes so FMIs (who are not subject to the SMCR) are treated in the same way as SMCR firms. | Where FMIs have been subject to SMCR-type requirements, they will benefit in the same way as other firms from the changes. |
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