Senior Managers and Certification Regime – accountability and opportunity

It came as no surprise to anyone that once again governance and culture featured prominently as a cross sector priority in the Financial Conduct Authority’s (FCA) 2019/20 business plan.

A key hammer to crack this particular nut will be the extension of the Senior Managers and Certification Regime (SMCR), which currently covers banks and insurers but will capture all regulated firms from the fixed implementation deadline of 9 December 2019.  But firms should not consider this in isolation, or as a ‘one off’ exercise - the governance and culture agenda continues to be an ongoing, permanent fixture of FCA supervisory focus and will likely be fertile ground for enforcement cases if current trends continue.

While the overhaul of governance and culture across financial services is a longer term aspiration for the FCA, it would be remiss of firms not to seize on SMCR as an opportunity to make positive improvements to their governance frameworks and internal reporting, and to engender a better understanding among employees of the remit of their responsibilities and their obligations under the conduct rules.

Firms focused on SMCR as a ‘tick box’ compliance exercise to complete by the 9 December 2019 deadline risk missing the point of the reforms, and the opportunity to get focused and sustained buy-in across the business to improve governance effectiveness. The increase in FCA investigations into firms’ governance and culture since the implementation of SMCR for banks and insurers points to the level of scrutiny from the regulator in this area.

Beyond the more obvious regulatory implications, such as assisting the FCA in identifying senior individuals in the course of Business As Usual  supervisory visits, scrutinising firms’ governance arrangements more easily and making it easier for the FCA to hold individuals to account during enforcement proceedings, SMCR should be viewed as an opportunity for firms. It can give firms a platform to demonstrate appropriate levels of accountability to the regulator, to better convey the robustness of their governance and controls arrangements, and to improve the efficiency and effectiveness of internal oversight and reporting by bolstering management information through the lens of reasonable steps.

We have seen firms seek to overhaul their Management Information (MI) reporting, especially using technology. The trend of increasingly dense committee and board packs is gradually reversing, with firms recognising that less is often more when attempting to convey volumes of complex data to busy board members.

The ability to produce concise but comprehensive packs and to consider how conduct risk and culture MI can be aggregated into behavioural indicators should not be underestimated in the context of a robust implementation of SMCR. For Senior Managers, being able to see these behavioural indicators of culture, make connections between risk types and identify emerging risks can give excellent visibility over their areas of responsibility and give comfort that reasonable steps are being taken and evidenced, allowing them to properly oversee the delegation and discharge of their responsibilities.

Rather than see this as a separate, SMCR-driven exercise to evidence reasonable steps, a review of MI reporting can usefully be undertaken alongside of, and in an integrated way with, SMCR implementation to improve employee behavior and business efficiency. So how can firms integrate SMCR in a way that complies with the rules while improving the effectiveness of governance to drive better consumer outcomes and improve the firm’s bottom line?

Firstly, it’s important to see governance in the round with SMCR as a key pillar. Rather than adding SMCR-specific reporting or processes, look at how existing procedures can be leveraged to account for the new requirements. The more successfully this is done, the more easily SMCR compliance will be embedded into the existing business structure.

Secondly, ensure that your internal messaging around SMCR is consistent with the governance and culture you want to drive. Bring staff on the journey by explaining the importance of SMCR in instilling a positive firm culture that better serves your customers and improves staff understanding of their roles and responsibilities.

Lastly, ensure early senior buy-in to the aims of your SMCR project. Early alignment regarding the broader governance and culture aims as well as how these are best achieved is critical to managing a coherent and successful project.


Grant  Lee

Grant Lee | Partner
Profile | Email | +44(0) 7213 1536

Nadia Rose

Nadia Rose | Senior Manager
Profile | Email | +44 (0)7841 467240

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