As readers will likely be aware, SMCR has applied to Banks since March 2016 and since the Fair and Effective Markets Review in 2015 it has been the Government's intention to see the regime more widely rolled-out to all FCA authorised firms (although not their appointed representatives). The core purpose of SMCR is to enhance accountability and conduct.
Whilst not quite the end of the road, it has taken a long time to get to this point, especially when it is recalled that the SMCR's genesis was the Parliamentary Commission on Banking Standards Report in 2012 and long before that the financial crisis in 2007/8. That said firms will, no doubt, welcome this much needed clarity on the rules, guidance and the implementation date.
The new proposed rules and guidance
Firms will be relieved that the content of the rules and guidance, whilst necessitating significant internal reforms (as to which see below), do not substantially differ from those that the FCA consulted on in July 2017 and in January 2018 in respect of transitional arrangements.
The core features of SMCR as will apply to all authorised firms remain:
- A new code of conduct for individuals at all levels of the firm, with additional rules for Senior Managers. There will be updated notification requirements.
- Senior Managers approved by the FCA for defined roles, signing-up to FCA prescribed responsibilities, supported by additional documentary trails of precisely who is responsible for what and how these responsibilities will be discharged.
- A duty of responsibility incumbent on all Senior Mangers personally, in respect of firm failures in an area for which they were responsible overall.
- The abolition of the Approved Persons Regime (APR).
- The firm adopting processes to enable its own annual assessment and (if appropriate) certification of a broader category of employees than was captured by APR, as "fit and proper".
- More detailed and onerous rules on requesting and providing regulatory references.
- All FCA firms being categorised as Limited Scope, Core or Enhanced depending on their size and this will impact upon the precise rules that apply to them.
Some relevant changes since the last FCA consultation
Reacting to the consultation responses, the FCA have made some changes to the rules and guidance originally under consultation. This includes:
- Removing the proposed Senior Manager's prescribed responsibility of informing the firm's governing body of its legal and regulatory obligations. It was recognised that this responsibility, commonly spread across a number of roles such as general counsel or secretary, was simply too onerous for one individual.
- Amendments to the criteria for establishing when a firm is to be categorised Enhanced. This is to reduce the risk of single-year anomalies causing Core Firms to become Enhanced firms. The transition period for firms moving between Core and Enhanced has also been lengthened to 12 months.
Timetable and next steps
With SMCR being implemented from 9 December 2019, the FCA will make the relevant forms (for example the transition Form K and the amended Form A) available for use around 9 September 2019. Until that time firms have the opportunity to prepare themselves for the changes coming down the tracks. These changes are significant. First, there will be real changes to individual roles and responsibilities and how these are perceived and described. Second, the firm's systems and processes (such as those dealing with the sharing of management information and conducting staff appraisals) will need to be updated and (in some cases) re-designed.
Firms should engage now with SMCR, to ensure that best use is made of the time available before implementation.
There is no doubt that the challenges that each firm faces will be different, depending on its size, sector and existing arrangements. In the coming months we will be helping our clients prepare for the rule changes. If you would like to come and speak with our multi-disciplinary SMCR team, informally and confidentially, about your particular circumstances, challenges and any concerns that you may have we would be pleased to hear from you.