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The Senior Managers and Certification Regime (SM&CR) applies to all Financial Services Markets Act 2000 (FSMA) authorised businesses including investment, asset management, mortgage broker and consumer credit companies.
The Senior Managers & Certification Regime is an accountability system focused on senior managers and individual responsibility.
SM&CR was developed by the Financial Conduct Authority (FCA), the regulator for 58,000 financial services firms and UK financial markets, following the 2007/08 financial crisis. It is part of an FCA drive to improve culture, governance and accountability within financial services firms.
The UK Parliament has amended legislation so that, since Monday 09 December 2019, SM&CR applies to all Financial Services Markets Act 2000 (FSMA) authorised businesses.
The amendment aims to improve conduct at all business levels, see that employees take greater personal responsibility for their actions, and to ensure that firms and employees understand and can show where responsibilities lie.
If your company provides almost any kind of financial service, for example, investment, asset management, mortgage brokerage or consumer credit, it is likely that you will need to comply with the Senior Managers & Certification Regime; bringing new responsibilities for HR services and processes.
There will be three types of firm affected by the new regime changes:
As with the previous Approved Persons Regime that requires FCA approval before senior and customer-facing employees can perform particular functions in a firm, certain types of company are subject to fewer requirements.
However, the FCA now expect all affected companies to apply some basic requirements, referred to as the ‘core regime’, which consists of three main parts:
Review employment contracts
Employment contracts should seek to accurately reflect employees’ areas of responsibility and, where appropriate, set out contractual requirements for individuals as part of the SM&CR. This will give certainty to the parties and will give the firm the ability to manage the employee effectively.
A well-drafted employment contract will help to demonstrate to the relevant regulator that the firm complies with SM&CR. If you are seeking to amend existing contracts, you also need to consider consultation obligations.
Update compliance manuals
You must ensure that your compliance manuals and other internal documents (for example, board and committee structures) are updated to reflect the individual accountability regime.
Ensure that you train all employees impacted by the SM&CR on the conduct rules so that they fully understand their responsibilities.
Implement systems to use in a breach
You should have systems and controls in place to notify the FCA of a breach of the conduct rules, as well as to set out the appropriate disciplinary action.
Allocate prescribed responsibility
Ensure that you allocate prescribed responsibility for the firm’s conduct rules obligations.
Please note, although the SM&CR changes came into effect on 09 December 2019, the FCA has warned that these could still be amended by subsequent handbook changes; for example, relating to Brexit.
For more information on the HR implications of the Senior Managers & Certification Regime, please contact us on 01332 226 149 or complete the form below.
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