SMCR compliance for solo-regulated firms

As a reminder, the SMCR is an FCA regulation concerning governance and has two core aims:

1. Encourage a culture where staff at all levels take personal responsibility for their actions; and

2. Make sure firms and staff clearly understand and can demonstrate where responsibility lies.

The SMCR regime has three components that apply to different levels of staff: the Senior Managers Regime (for the most senior staff), the Certification Regime (for certain functions such as Material Risk Takers, Proprietary Traders, among others), and the Conduct Rules (applicable to all staff except ancillary staff).

The SMCR has already been implemented for other FCA regulated firms, such as insurers and banks (dual-regulated ones), and we know from their implementation process that it is quite onerous and requires a thorough examination of the current governance system.

So, what lessons should solo-regulated firms keep in mind to avoid the pitfalls of SMCR compliance and learn from previous experience?

We believe there are five core points that solo-regulated firms should consider, based on the experience of firms that have gone before, when implementing their SMCR compliance programme.

1. Involve your Human Resources and Legal departments in the implementation programme from the very start and throughout – as the rules affect the roles and responsibilities of all employees. This will help ensure that the requirements feed into the annual HR process, especially when it comes to harmonising job descriptions.

2. Implement the proper processes and controls. The Conduct Rules apply to all staff (except for ancillary staff) and are intended to improve standards of individual behaviour. To achieve this, firms need to have proper training and communication strategies so that staff are aware and educated about how the Conduct Rules apply to them.

3. Overcome institutional impediments as the regulation holds Senior Managers to account, which means they will need to overcome the operational challenges in overseeing their employees and more closely monitoring their behaviours and activities. There is no shirking from responsibility under SMCR.

4. From our previous experience implementing SMCR compliance for banks, identifying accountability and determining who’s responsible for what takes time to work out. This also requires mapping employees to responsibilities and continuously updating it. This task is often underestimated as more often than not certain Senior Manager Regime prescribed responsibilities need to be shared jointly or split, which takes time to agree, sign-off and document.

5. Finally, think about creating a reasonable steps framework to support compliance with the Senior Managers Regime by evidencing the reasonable steps they take in discharging their duties, monitoring delegations, and other aspects of their roles that require evidence. This way, if the FCA investigates an issue the firm and the employee can quickly provide their evidence and hopefully avoid a drawn-out investigation.

In conclusion, don’t underestimate the task of SMCR compliance. You may need to implement some creative and innovative solutions to be compliant. If you haven’t started already, we recommend you begin now. Contact Sia Partners today for help.