Financial advice firms: getting ready for SMCR – what you need to do

19 May, 2020Julie Pardy

The regulator has been reconsidering deadlines for the Senior Managers and Certification Regime (SMCR) because of Covid-19 and its impact. But firms are already subject to many of SMCR rules and responsibilities. Julie Pardy explains what you should be doing now to get your firm ready.

What’s happening with SMCR deadlines?

black 2020 planner on deskThe 9 December 2020 deadline for implementing a firm’s internal certification regime is still valid. So, you should start planning and preparing the remaining components of the regime as early as you can – especially in light of the Covid-19 crisis.

The additional challenges of remote working only complicate matters in the ongoing assessment of employee competence.   

Dual-regulated firms of course are already subject to all components of SMCR and have been for some time. However, those solo regulated firms who might have been waiting for a delay to the 9 December deadline will currently remain disappointed. The Financial Conduct Authority (FCA) has stated that the deadline still stands.

How can I be sure of meeting the FCA deadline?

Begin planning as soon as possible.

The regulator has provided templates for submitting data and any required changes to the data on certified staff. And – whilst this might all seem straightforward in principle – there is no doubt that meeting the requirements of the Directory of Certified and Assessed Persons is, and will remain, a challenge for many firms.

For most, the data required by the Directory will be held across several systems and functions – ranging from human resources (HR) to training and competence (T&C) and potentially compliance records too. 

Pulling the data from multiple systems to create and verify the initial dataset will take time. 

Perhaps more importantly, you need to identify when changes occur to an individual’s status, because that will trigger the need for a Directory update.

So, you need to identify, test, prove and implement the correct processes and procedures in time for the deadline.

What are the biggest SMCR challenges?

The project typically involves disparate systems and functions. It’s something of a learning curve for those who are to be involved in managing the process!

Start by finding a suitable operating model. This should bring the appropriate components into a coherent, reliable and justifiable process that works for the shape, type, size and structure of your business.

What do I need to identify, measure and validate?

A typical list of considerations that you might wish to consider includes:

  • Disclosure and Barring Service (DBS) checks
  • honesty, integrity and reputation assessment of your choice
  • annual replication of Form A
  • competence and capability assessment
  • self-disclosure from each certified person
  • regulatory references for those designated to perform a ‘senior management function’ and certified staff
  • performance appraisals
  • conduct rules training and knowledge-based testing
  • credit checks
  • related HR policies, logics and rationales.

Some of these suggestions may not apply to your firm. Or you may need to consider additional measures when validating fitness and propriety.

Keyboard, notebook and calendarYou should also think about your own objectives when implementing the regime and identify the outcomes you’d like to achieve.

You can then use those objectives and principles as points of reference when planning, executing and measuring the success of implementing SMCR.

How long should it take?

On average, it takes several months to get ready to implement Certification within a firm.

A trial run will help you confirm that you’ve identified and established the right systems and controls. And it will bring to life the impact of running the regime as business as usual, before having to do it for real.

What’s the best way to address the new requirements under ‘fit and proper’ conduct?

In the Code of Conduct (COCON) section of the FCA Handbook, you’ll find two tiers of rules that apply to employees – designed to promote positive behaviour and reduce harm.

The conduct rules cover both your regulated and unregulated activities – including any related ancillary activities – and apply to:

  • all senior managers
  • those who carry out certified functions
  • all non-executive directors and
  • any other employee not designated as ancillary staff – that is not HR admin, catering, cleaners, IT support etc.

A full list of people considered to be ancillary staff can be found under COCON (pdf) or in the FCA’s SMCR Guidance publication.

What sort of additional training is my firm likely to need?

You must provide your employees with training and guidance on the conduct rules and how those rules apply to their role and duties. Training must be relevant to each individual colleague.

At least one ‘SMF’ – that is, someone designated to perform a ‘senior management function’ – should be responsible for appropriate conduct rules training. You should engage those accountable in the design, delivery and the assessment of effectiveness.

You can make things easier by identifying groups of employees who undertake similar tasks – or ‘job families’ – to make case studies and examples more relevant. This helps when demonstrating how the rules might affect individuals, and their roles and responsibilities.

How can compliance technologies help?

You may find you need either additional resource or technology to manage the extra administrative burden. At its best, technology can help with:

  • automating the transactional stuff
  • ensuring tasks are completed to time and standard, as part of an automated process
  • freeing up administration teams and
  • consolidating records and processes onto a single platform.

Technology will give you the best chance of managing an effective, robust and efficient process. And, crucially, it can help you capture a complete audit trail and evidence record – of all actions, decisions and outcomes – by managing processes effectively.

Julie Pardy
Julie Pardy is the Director of Regulation and Market Engagement at Worksmart, and has over 30 years' experience in banking, insurance and wealth management. She has held senior roles across sales, compliance, operations, and training and competence. For the last third of her career she has acted as a consultant to the industry. In her current role, she helps organisations implement their responsibilities under SMCR. 

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