Grant Thornton (GT), the independent advisory, tax and audit firm, has provided advice and consultancy to financial services firms affected by the UK’s Senior Managers and Certification Regime (SM&CR). 

Paul Young, a managing director at GT, spoke to Leasing Life on the firm’s role in embedding SM&CR and the Policy Statement published on 4th July 2018. 

The aim of the SM&CR is to reduce harm to consumers and strengthen market integrity by creating a system that enables firms and regulators to hold people to account. As part of this, the SM&CR aims to:

  • encourage staff to take personal responsibility for their actions
  • improve conduct at all levels
  • make sure firms and staff clearly understand and can demonstrate who does what

SM&CR drives greater individual accountability in an FCA regulated environment by the establishment of senior managers and certified staff with the potential for significant fines and jail term.

GT was heavily involved in Phase 1 of the SM&CR, which included banks, building societies and credit unions.  GT has provided organisations with advisory, assurance and resource augmentation to help address the significant and complex components of the Regime as it is more than a simple “form filling” exercise.  There are a multitude of aspects such as governance, structures and organisational issues that will need to be addressed for organisations that will now fall within the Regime.

The FCA published on 4 July 2018 the near-final rules on the extension of SM&CR, caught within Phase 2, which is due for implementation on 9 December 2019. On the same day, they published a Consultation Paper on creating a new public register for checking the details of key individuals working in financial services.

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Although this deadline may appear far off, the major lesson learnt from Phase 1 of the Regime was that “you can never start too early”. The extensive structural, governance and business practices that need to be reviewed, aligned and clarified across your senior management and certified populations requires significant time investment. This will ensure that the organisation structure is fit for purpose and individuals are aware of the Regime’s requirements and impact.  The complexity increases when organisations have international operations, as the Regime has no geographic borders. Many issues need to be addressed early in the Regime’s design stage to ensure that all captured individuals have a clear understanding of their responsibilities and outcomes if issues arise from within their function.  These outcomes can include remunerations clawback, unlimited fines and even jail terms.

When we engage with organisations, we start by asking simple questions such as ‘What do you do and who is responsible?’  These simple questions force organisations to provide a root and branch review of roles and responsibilities.  This is what SM&CR is all about.  Senior individuals will be held personally accountable and will need to know their precise responsibilities.

Dual reporting lines, both internationally and locally cause confusion as to who is ultimately responsible. Where firms have international links to subsidiaries or Group Head Offices, reporting lines and organisational structures can bring in overseas individuals within the Regime.

GT has engaged with Human Resources and Compliance functions to embed conduct rules and fitness assessments and ensuring that an appropriate communications/training programme is rolled out across the organisation.

The Regime requires the supporting infrastructure to include documentation retention capability for all captured individuals such as qualifications, CVs, annual assessments, job descriptions and statements of responsibilities.  Policies and procedures that capture the requirements of the Regime need to be re-written and communicated across the organisation to ensure they are followed and monitored.

SM&CR has an impact across the three lines of defence in that it captures individuals from all of these lines.  If an event takes place, a number of individuals may end up being associated, even tangentially.   Therefore, an effective three lines of defence model would have embedded controls and safeguards to provide those impacted by SM&CR with an infrastructure on which they can place reliance.

The FCA ‘near-final’ rules are subject to amendments, for example with respect to UK’s exit from the European Union and also subject to commencement regulations from HM Treasury.  However, the FCA does not expect to make any major changes.

The FCA has also proposed creating a new Directory which will provide a public record of the firms and the individuals the FCA and Prudential Regulation Authority (PRA) have approved. This list will make public additional individuals carrying out a wider range of roles including Certification staff, non-Senior Manager Function Directors (executive and non-executive) and those who the FCA does not approve (such as financial advisers, pensions and mortgage advisers, traders, portfolio managers and additional managers and directors). This will create significant challenges in keeping it up to date as the FCA will expect the Directory to be up to date at all times.