What will the SM&CR mean for consumer credit firms?

25 October 2017

Firms have now had some time to digest the FCA’s July proposals to extend the Senior Managers & Certification Regime (SM&CR) to all regulated firms. The proposals represent perhaps a bigger challenge for the consumer credit industry compared to other sectors, for two main reasons.

Firstly, because consumer credit firms are only two and a half years into FCA regulation. So their governance arrangements may not always be as mature as firms which have been regulated by the FCA for much longer. And secondly, because consumer credit firms are dealing with a particularly busy regulatory agenda at the moment. Among the proposals they’re grappling with are proposed new affordability rules published by the FCA in July and the FCA’s high-cost credit review. Within this review, it has already highlighted concerns with the rent to own, home collected credit and catalogue credit sectors, as well as unarranged overdrafts. The motor finance sector is also under the spotlight.

With so much going on, there’s a risk around sufficient resources and time to prepare for the SM&CR. But it’s vital that firms do so – not just because SM&CR is a significant undertaking, but because the regime underpins so much of the FCA’s other work. If the FCA finds conduct failings at firms, it will almost always look at the strength of their regulatory governance arrangements. So getting the SM&CR right will help firms meet the FCA’s expectations in other areas.

So what do consumer credit firms need to focus on in their preparations for the regime? Under the SM&CR, firms will need to submit Statements of Responsibility and Management Responsibility Maps, which set out who in the firm is responsible for what. Whilst proportionality is recognised, ensuring firms have the right level of quality and consistency across these documents could be a challenge for those in the consumer credit sector, given their management and governance arrangements overall may not yet be as developed as firms in other industries.

Firms should also not underestimate the amount of work they have to do, whichever branch of the FCA’s three-tier proportionate approach they fall under. For instance, firms under the ‘core’ regime are not required to submit responsibility maps. But it’s important to remember that they will still need to carry out some form of internal mapping exercise. This is because they will have to identify their Senior Manager Functions and submit Statements of Responsibility – and working out who is responsible for what will be key to doing this properly. And while this task will be less onerous for smaller firms given they have fewer management roles, in such firms the FCA is likely to place an even greater focus on culture. This is because, if only a few individuals are responsible for all areas of a business, it will be even more important that they properly understand the SM&CR and are able to embed a culture of accountability.

While we’re still waiting for the FCA to confirm its final plans for extending the SM&CR in a policy statement, consumer credit firms can begin the preparatory work now to put themselves in the best position for implementing the regime. Clarifying roles and responsibilities now will be a very useful exercise which will help firms to get up to speed in time for the regime coming into force in 2018.

John Coley | Director
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Tessa Norman | Senior Associate
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