SMCR – A catalyst for change. Are you ready?

The deadline for implementation of the Senior Managers and Certification Regime (SMCR) is now less than three months away. The regime was rolled out to banks and insurance companies three years ago and, after 9 December 2019, it will also apply to all 47,000 companies regulated by the FCA (Financial Conduct Authority).

The FCA describes the SMCR as “a catalyst for change – an opportunity to establish healthy cultures and effective governance in firms, by encouraging greater individual accountability and setting a new standard of personal conduct.”

Responsibilities for senior management

Effectively, the SMCR transfers the responsibility for how advisers behave away from the FCA and onto individual firms, with the intention of making senior managers more responsible as well as stopping the practice of ‘bad apples rolling’. From the December deadline, anyone holding a senior management function will need to be approved by the FCA, and every senior manager will need to fill out a statement of responsibilities.

More comprehensive ‘fit and proper’ test for advisers

The fit and proper test is already familiar to advisers, but under the SMCR, evidence requirements will be extended to include criminal records checks and regulatory references. Additionally, existing approved persons will need to be adjudged and monitored (at least once a year) to be ‘fit and proper’ to maintain competency.

The Chartered Institute for Securities and Investment has issued guidance on how to assess integrity, due care and diligence each year, which is linked to the FCA conduct rules.

These are:

• You must act with integrity
• You must act with due care, skill and diligence
• You must be open and cooperative with the FCA, the PRA and other regulators
• You must pay due regard to the interests of customers and treat them fairly
• You must observe proper standards of market conduct.

What are regulatory references?

Firms must now request a regulatory reference for anyone applying for senior manager, certification and non-approved roles. Certification includes CF30 roles, as well as mortgage advisers.

Regulatory references are intended to help firms make better-informed decisions about candidates, but also represent a major shift in how the industry shares information about past personnel. A regulatory reference must include any disciplinary action taken due to breaches of the conduct rules and any findings that the person was not fit and proper. Equally, the firm is responsible for including any other relevant information (dating back six years) in assessing whether a candidate is fit and proper – this could include, for example, how many complaints have been upheld.

The impact on advisers wanting to move firms

From 9 December, it is likely that senior managers will want to check a candidate’s six-year track record before approving them. This runs contrary to current practice, where you can resign from your current firm first and accept a new job offer before your new employer then asks for references.

Advisers will therefore now be faced with the prospect of having to make their current employer aware of the fact they intend to resign, pre-empting a reference request. For those advisers who have changed jobs several times during the past six years, there could be a lengthy wait for all references to be received and there is always the risk that the employer may decide not to make an offer after all.

Don’t bury your head in the sand  

The new regime could therefore make advisers think twice before changing firms. If you are thinking of moving, don’t get stuck in a place you don’t want to be. Why not consider your options to move sooner rather than later?

How can Sandringham help?

Why not consider The Sandringham Way, which gives you:

• more time to think – we’ll free you of the time-consuming complexities and barriers to arranging and managing clients’ financial plans efficiently

• time for your advice to deliver – there’ll be more time for you to ensure your clients’ investment, retirement and protection choices are working for the long term

If you want to see how Sandringham can help you to build a proficient, profitable and future-proofed business, why not join us at one of our experience days?