Why it's time to lift the pause button on the SM&CR

26 February 2019

Back in early 2018, following the FCA’s paper on the Senior Managers & Certification Regime (SM&CR) which delayed the start date of the extended regime to December 2019, we found that some firms hit the pause button on their implementation plans.  

With such a busy regulatory agenda and the impact of Brexit to think about, this extension may have been too tempting, providing firms with some breathing space. But our experience in helping banks to implement the regime suggests that firms would have been well advised to use this extra time to start their preparations early. If you lost momentum in your SM&CR preparations, what actions should you be taking now, and what are we seeing in other firms?

While the extension to the regime covers a wide demographic of firms, there are learnings from the original SM&CR regime which are relevant to all. The cross-disciplinary nature of the regime - requiring senior (CEO) leadership, legal expertise, HR support and compliance engagement, forces firms to draw together a wide project leadership team.

The personal nature of the SM&CR also means that early engagement with senior staff is critical to getting things right. Because it is a very personal regime for senior managers, firms should provide adequate time for senior managers to understand their role, remit and how they need to interact with others. In the event that risks do crystalise it's important for individuals to demonstrate that a process or reasonable steps have been taken, and as a result during the implementation phase individuals may have higher requirements. This not only demonstrates the importance of training in the the roll-out but also early and ongoing dialogue with the SMFs. Additionally, it’s important to have good initial and ongoing communications with all staff, particularly with HR and compliance teams as well as the impacted individuals.

Many firms that had recently focused on governance  - whether by choice, at the behest of the regulator or due to mergers or acquisitions, found the SM&CR easier to navigate. As governance structures are a major area of focus in firms’ preparations, firms must consider how existing governance arrangements support individuals to comply with the requirements, be that documenting reasonable steps as a Senior Manager, or developing Statements of Responsibilities and Management Responsibility Maps for enhanced firms which fit with existing committees and structures. In addition, the regime may have knock on implications for other areas such as contracts, tax, remuneration and job descriptions, all of which will take time for firms to work through.

Other lessons learned include the need to ‘test’ senior management function (SMF) mapping. Working through scenarios which allowed a firm to stress their Responsibility Maps under real world scenarios often resulted in useful debate and challenge about the practical realities of where responsibility and accountability genuinely lay in difficult times.

For firms in the ‘core’ regime, a different challenge my be overall engagement. With a superficially ‘simple’ transition, perceptively limited to the executive or not status of a firm’s chairperson, runs the risk that firms don’t engage. This would be a mistake as the accountability for the correct administration of the Certification Regime, among other areas, is a significant uptick in responsibility for the firm, and the SMF holder.

Whichever sector or level of the regime you’re in, the message is clear - firms must now start to deliver their regimes and cannot afford to wait longer; a year has flown by and December will approach rapidly. The earlier the engagement, the greater the benefit and hopefully smoother the implementation.

Grant Lee

Grant Lee | Partner
Profile | Email | +44 (0)7841 494307

Andrew Strange

Andrew Strange | Director
Profile | Email | +44 (0)7730 146626

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