Grandfathering into the Senior Managers Regime – more than just a technical exercise

24 October 2017

Most firms I speak to have now broadly absorbed the proposals in the Financial Conduct Authority’s (FCA) consultation on extending the Senior Managers Regime (SMR) to all firms, published in July. The more astute, however, are beginning to think about the upcoming technical consultation, expected towards the end of 2017.

It’s easy to sometimes focus on the big regulatory concepts, and to marginalise the more technical elements of proposals. But with SMR in particular, I do think there will be a lot of devil in the detail. And that is detail that firms must engage with.

While the broad scope of the SMR is clear, the July announcements didn’t cover a number of crucial details – in particular grandfathering and transitional provisions. We know that the 2018 deadline for implementation is hard-wired into primary legislation. But there are a number of operational considerations that firms should think about. Cycling 47,500 firms into the regime is no mean feat. How will the FCA do this?  Will it be a big bang or gradual? If the latter, how will it separate firms? Sector-by-sector?  Geographically?

The only precedent for such a large number of firms passing through an authorisation process is the transfer of consumer credit firms to the FCA in April 2014. In that case transferring firms according to a combination of firm type – based on risk – and geographic location worked.

Why does this matter? Well, given that we don’t yet know what to expect, except that 2018 is a formal deadline, firms need to be ahead of the curve, to meet what feels like an ambitious target.

Then there’s the issue of grandfathering. Under the banking SMR, individual Significant Influence Function (SIF) holders in specific roles could grandfather to certain SMR roles.  CEOs could remain CEOs, but Chief Compliance Officers couldn’t become Chief Risk Officers overnight. Assuming your people were lined up in the right roles, with the right responsibilities, grandfathering eased the burden. But, if your relationship mapping led to changes in role or responsibility – there were many ‘tweaks’ for an awful lot of Senior Managers - and if that wasn’t done before transition you could have ended up with people unable to grandfather to the right role. The only solution to this was to make a formal application, under the SMR, to the FCA.

To avoid this, firms need to have their ducks lined up as soon as is practically possible. Doing so will also help tease out those ‘tweaks’ that firms will need to work through.  If ever there was a regulatory initiative where preparation reaps benefits, this is it. The consultation on the transitional elements isn’t far away; the time to engage is now.

Grant Lee | Partner
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Andrew Strange | Director
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