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SM&CR and the Banking Sector – What can we learn?
It has been three years since the Senior Managers and Certification Regime (SM&CR) was implemented in the banking sector and the FCA has conducted a review into how effectively the regime has been embedded.
SM&CR was introduced in the banking sector in March 2016 and it applied to insurers from December 2018. In December 2019, it will be rolled out to FCA solo-regulated firms, including claims management companies.
The purpose of this review is to understand how the regime has been implemented by the banking sector and to enable other firms to learn from this in developing their own approach to embedding SM&CR.
The review covered various elements of SM&CR, including:
- senior manager accountability
- the certification regime
- regulatory references
- the conduct rules
- impact on culture
- unintended consequences of the regime
- embedding and overcoming initial implementation issues
The regulator has stated that it is interested understanding the areas and issues that may require increased focus from itself and the firms it regulates.
It is worth bearing in mind that this review is not intended to result in any policy changes, and it is not a full post-implementation review.
So, what can we learn from SM&CR’s implementation in the banking sector?
Overall the review has shown that the industry has made “a concerted effort to implement the regime” and that many firms have come to “see clear definition of accountability as beneficial”.
It would appear that most firms had embarked on assessing and improving their culture prior to the implementation of the regime.
Culture is difficult to define and therefore it can be difficult to measure – this has been reported as challenging by some firms. However, an increase in discussions surrounding culture and expected behaviours has also been reported, suggesting that some firms are making an effort to improve culture.
It has been reported in the that some firms have placed particular importance on Management Responsibilities Maps.
Under the extended regime, only Enhanced Firms are required to complete such maps. Responsibilities Maps have a number of useful functions, including understanding who reports to whom, highlighting decision-making accountabilities and making clear areas of responsibility.
It was also noted that the majority of firms felt that their staff understood the conduct rules – however, the FCA believes that their evidence suggests firms have not always sufficiently tailored conduct rules training to the individual’s job role.
From this, we can assume that conduct rules training needs to be more specific i.e. how do the conduct rules relate to the individual and their day-to-day work?
Similarly, it was noted that many firms could not articulate what constituted a conduct rule breach in their business. This is a crucial part of the conduct rules element of the regime as firms are required to make an annual notification regarding the conduct rules, even if there haven’t been any breaches. This level of reporting is required in order to ensure that firms are able to correctly monitor and identify any conduct rules breaches.
It is important to remember that SM&CR has been part of the FCA’s thinking for many years, and governance and culture – a key part of the regime – continues to be a priority. With only a few months to go before the December implementation, firms should be preparing for the new regime now.
RWA is hosting an SM&CR workshop at the Chateau Impney hotel, Droitwich on 12th September 2019. The event will offer firms insight, discussion and practical guidance about the new regime, with John King (previously of the FCA) as the key-note speaker. For more information and to register, please click here.