Solo-regulated firms may need to accelerate the pace at which they are preparing for the Senior Managers & Certification Regime (SM&CR) in the UK, which has a deadline of 9 December this year.
A new poll conducted during a recent ACA Compliance Group webcast on the Financial Conduct Authority’s (FCA’s) rules shows that the majority of firms have quite a bit of work to do, to complete their preparations in advance of the deadline.
For example, 60% of firms surveyed are one-third, or less, of the way through their SM&CR projects. The solo-regulated firms who attended the webinar included asset managers, hedge funds, private equity firms, broker-dealers and wealth managers.
More than one quarter of firms surveyed admit there is little general awareness of SM&CR outside of the compliance team. Less than 2% of firms’ employees have a good awareness of the new rules and their implications across the organization. The majority have not allocated the Prescribed Responsibilities to senior managers, also required under SM&CR, either.
The amount of work required by firms ahead of the SM&CR deadline should not be underestimated. For some firms, the coming of this new regime will necessitate substantial changes to both governance and culture. Solo-regulated firms will often need to put considerable thought into how they intend to meet the SM&CR requirements, and the work required to deliver compliance can also take time. The recent SM&CR webcast looked closely at key areas that firms need to implement in advance of the 9 December deadline. These include:
- Allocating Prescribed Responsibilities – These are specific regulatory responsibilities that must be assigned to an individual senior manager. There are four roles for core firms and two additional roles for firms in more advanced regulatory classifications. The individuals assigned to these roles must be the most senior manager responsible for that activity or area, and firms should avoid assigning a wide range of responsibilities to just one individual – ie. the compliance officer. In some cases the CEO of the firm should be assigned certain responsibilities.
- Writing Statements of Responsibility – These clearly set out an individual senior manager’s roles and responsibilities under the SM&CR. It needs to be clear and succinct, contain detail about the roles and responsibilities themselves, and be self-contained, that is, not referring to other documents. These documents need to be updated and resubmitted to the FCA whenever there is a material change. They also need to be aligned with key HR materials, such as employment contracts, job descriptions, and legal documents such as LLP agreements.
- Implementing Certification processes – Under the new regime, firms are required to assess the fitness and propriety of employees. The FCA leaves it to the discretion of firms as to how they perform this assessment – specific requirements are not clearly defined. Firms have until December 2020 to certify existing staff, but they must identify who will fall within this certification regime by 9 December. The certification process applies to all new employees after 9 December, as well.
The SM&CR is designed to reduce harm and strengthen integrity across the whole financial system, as well as within individual firms, by making individuals truly accountable for their own conduct and all-round competence. So, it’s important that firms get SM&CR right at the level of each individual employee. There are new policies, processes, and documentation that solo-regulated firms must implement, and the engagement that must take place with certain individual employees will take time. In addition, employees across the firm need to be trained on SM&CR in general, and in many cases, as it touches their own roles in particular. It’s important for firms to start working on SM&CR in earnest today.
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To learn more about what your firm may need to do to prepare for SM&CR, listen to the ACA Compliance Group’s recent webinar, or download a summary infographic capturing the findings of our poll.