Five years on from its birth and a year after it was rolled out to solo-regulated firms, what impact has the Senior Managers’ Certification Regime had?
SMCR was intended to improve behaviour and personal accountability in the financial sector. Is it achieving its goals?
SMCR has led to only one enforcement action so far. A freedom of information request from
Bovill found that the FCA has opened 34 investigations, closed 11 without action, and only successfully enforced a fine on one occasion. It also reveals that the FCA currently has 21 open investigations under SMCR, and has posted a notice to impose a financial
penalty and prohibition for a second individual. However, this has been awaiting ratification for a long time and lengthy procedures appear to be holding the regulations back.
Another freedom of information request by Duff & Phelps, focusing on the advisory space, shows that the FCA is at least opening more of these cases. However, the number of cases in which customers’ complaints was upheld has fallen.
VERDICT: off to a slow start
While much of the focus rests on enforcement, the real goal of SMCR is to foster behavioural change. There are signs that this is happening. Many organisations which had objected to the imposition of SMCR now say they have benefited from the clarity it has
brought to accountability. According to the
PRA’s recent report into SMCR, 95% of the firms surveyed said it was having a positive impact on individual behaviour. Fitness and proprietary requirements have supported higher professional standards and personal accountability.
The same appears to be true of solo regulated firms, where the need to comply with SMCR is helping to improve compliance and behaviour overall. In his article for FT Advisor, Turner adds that firms are internally identifying people whose behaviour is falling
short of the required standards and taking action.
VERDICT: positive signs
A good start
Overall, SMCR is bringing positive impacts. On enforcement, the message is that the regulator is using the rules even if the number of actions taken so far is low. And there are good signs that firms are using SMCR positively to reinforce cultural and competency
expectations and standards. Concerns raised before SMCR’s implementation, such as that it may make recruiting people more difficult, have not materialised.
SMCR’s positive impacts are gained at the expense of some increases in compliance process complexity and costs, with increases in documentation and reporting required. Observers such as
Mark Turner of Duff & Phelps warn that excessive documentation could have an adverse impact on compliance: “companies must guard against the risk of a tick-box mentality emerging, where the sheer volume of data being collected can end up obscuring analysis
of that data.”
OVERALL VERDICT: SMCR if off to a reasonable start with regulated firms reporting overall net gains from its introduction. Firms need to ensure that their response to requirements remains proportionate, and regulators may need to address some procedural
issues. But at this stage, we feel SMCR is starting to achieve the desired outcome