The Senior Managers & Certification Regime (SM&CR) is a requirement for all firms regulated by the Financial Conduct Authority that aren't solo-regulated by the FCA. If you have more than one senior manager or control important systems and processes at your firm, you're required to comply with SM&CR. These firms have two options for compliance: Enhanced status, which means they go through a process of continuous evaluation by the FCA. Or alternatively, Standard Status, meaning that these companies only complete an internal self-assessment every 18 months.
Key Elements of the SM&CR
The SM&CR is a set of rules that will govern the management and governance of firms in the financial services sector. There are three key elements to it:
- Senior Managers Regime: this aims to make sure that firms have the right senior managers in place and are able to identify weaknesses sooner.
- Certification Regime: this sets out how different types of regulated activity can be carried on by firms (for example, investment advice or providing credit). It also provides more detail about what is allowed for each type of business.
- Conduct Rules: These rules apply to the majority of staff at a firm and set out the standards of behaviour that those people must follow. These rules were created to enforce personal accountability for one's actions and ensure everyone does so to improve conduct at all times.
Applications and Benefits of SM&CR
Senior management positions are required to be accredited by a certification body. This is mandatory, and the regulator has said they will take enforcement action for those firms who do not comply with SM&CR, which includes "appropriate risk-based responses" but does not specify what this means.
The Senior Manager's Certification Regime (SM&CR) was introduced in 2018 to ensure that all senior managers within financial services companies hold the right skill set to manage their business effectively. There are three tiers: enhanced, standard, or basic - depending on how much training each individual needs. Fines can now range from £500,000 up to £20 million for non-compliance, and an unlimited fine may also apply where criminal behavior is found to be a contributory factor.
The FCA Approach
When the Senior Managers and Certification Regime (SM&CR) was first introduced in 2016, it came as a surprise to many. It was designed by The Financial Conduct Authority (FCA) with the aim of regulating firms that have been classified as "solo regulated," which are firms based outside the European Economic Area (EEA). In November 2017, after three years of experience from running SM&CR, the FCA conducted a review on whether there should be an extension or if they would need to introduce stricter regulation. The FCA decided not to extend its scope but instead will require solo-regulated firms to appoint more senior staff for compliance purposes. This requirement is part of the Enhanced Sanctions regime, where enhanced sanctions could include a ban from the FCA and/or disqualification.
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