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A compliance guru's senior managers regime insight

A compliance guru's senior managers regime insight

The broadening of the senior managers and certification regime (SMCR) next year will bring an additional 47,000 firms under the regulation, so what should wealth and asset managers do to prepare?

A proportionate approach to the regulation is being taken, meaning larger firms have more requirements to meet, whereas, the impact on the many ‘one person’ firms will be much more limited.

The Financial Conduct Authority (FCA) wants to build a ‘culture of accountability’ and for the typical ‘one person’ firm, the accountability may already be inherent, as they are probably accountable for everything anyway.

For larger firms, the senior manager may currently hold a control function, but the new regime will include elements which codify the accountability, such as statement and duty of responsibility, and prescribed responsibilities.

As seen in the first round of SMCR, some senior managers may not wish to take the responsibility and either leave the firm or refuse to take any additional responsibility.

For those senior managers who agree to accept the responsibility, they might want to consider building a safety net if they do not already have one.

FCA expectations

Even in the best run firms things can go wrong.

Before the first round of SMCR in 2015, the then acting FCA chief executive Tracey McDermott made a speech on SMCR and discussed how to measure its success.

‘How will we know if we have succeeded? The measure should not be “no misconduct”. I think this would be unrealistic,’ she said.

‘Things will go wrong and in financial services, as in any other industry, there will always be rogues.

'But what I would hope to see is more cases where misconduct is spotted by firms rather than by the regulator. And where it is spotted, it is identified sooner and acted on robustly.’


Clearly, the FCA does not expect every firm to be 100% bulletproof, but they do expect firms to have an effective governance framework that can spot and deal with problems.

If something does go badly wrong, the FCA will look at managers holding senior management functions (SMFs) to see if the senior manager has taken ‘reasonable steps’ to avoid wrongdoing or how they reacted afterwards.

In the FCA’s rulebook (Depp 6.2), which is titled ‘deciding whether to take action’, it sets out the factors the FCA must consider if something goes wrong.

The words ‘reasonable steps’ are used 14 times in this section alone, many of which relate to governance arrangements.

So how can the senior manager build a safety net?

The safety net

Safety nets are made up of netting/pillars and normally used by trapeze artists as their activity comes with increased risk. Becoming a senior manager under the new regime also comes with increased risk. 

Regardless of whether the senior manager has been with a firm a while, or is new to the role, with the implementation of the SMCR, the senior manager would be wise to review the governance arrangements for the area for which he/she is accountable.

This could be particularly important for a senior manager who is relatively new to the firm.

It helps with familiarisation and the reassurance gained from the exercise will allow the senior manager to concentrate fully on making the new role a success without unduly worrying about accountability.

The review itself is a good contributor to the ‘reasonable steps’, with any weaknesses identified and subsequently rectified, adding to the senior manager discharging his or her responsibility further.

Even though it is a while until the SMCR comes into force, existing senior managers should be challenging current governance arrangements and not waiting until implementation.

Benchmark your ‘reasonable steps’

Like anything in life, it is always best not to be the outlier that trails the pack. If undertaking a review is the netting, then benchmarking is the pillar that gives the safety net its strength.

The FCA’s staff are only human (some of you may disagree, LOL), but it means they are likely to draw comparisons with other firms.

If the governance arrangements within the senior manager’s areas are poor in comparison, then the senior manager may struggle to satisfy the regulator that ‘reasonable steps’ have been taken.

So, a great piece of advice to a senior manager is — ‘as part of your review, make sure you take time to benchmark your governance arrangements against your peers’.

Of course, I am not suggesting that anyone breaks confidentiality agreements, but a senior manager should leverage their own contacts and the knowledge within the firm to gather opinions on how their arrangements compare.

It might just keep you safe.

Matthew Speck (pictured) is an independent consultant at Speck Consulting

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