Firms Remain Unprepared for SM&CR Deadline

There are now only two months to go until the implementation of the Senior Managers and Certification Regime (SM&CR) and research by RWA suggests that many firms remain unprepared.

Over the last six months, RWA’s consultants have discussed SM&CR, in depth, with over 140 firms. This has given us an insight into the individual needs of firms but also a wider understanding of how prepared firms are for the arrival of the new regime on 9 December 2019.

SM&CR represents one of the biggest changes in general insurance regulation in over a decade. The new regime aims to improve conduct at all levels within the financial services sector, increase personal accountability and ensure that firms and staff understand (and can show) who does what. Its impacts are far-reaching, and firms need to be ready in order to ensure a smooth transition to SM&CR on 9 December.

Our research data suggests that only 16% of in-scope brokerages have developed an implementation plan for SM&CR. This indicates, that at the time of the interview, approximately 84% of firms had not even planned for how they would get ready for the new regime.

Who is Responsible for What?

Under SM&CR each Senior Manager within a firm is required to have a Statement of Responsibilities (SoR) which sets out clearly and concisely their roles and responsibilities. SoRs help provide clarity over who is responsible for what and makes it clear where accountability lies. Alarmingly, a staggering 95% of firms interviewed stated that they had yet to put in place an up-to-date Statement of Responsibilities for each of their Senior Managers.

Furthermore, the data suggests that only 35% of Senior Managers within firms had been made aware of their Duty of Responsibility. All Senior Managers have a Duty of Responsibility under the Financial Services and Markets Act. It means that if a firm breaches FCA requirements, the Senior Manager responsible for a business area could be held personally accountable if they failed to take reasonable steps to prevent or stop a breach.

Similarly, only 36% of firms have reviewed and, where necessary, updated, individuals’ job specifications to reflect individual regulatory responsibilities. Moreover, only 19% of firms had reviewed or updated contracts of employment to reflect requirements on individuals under SM&CR. It is sensible to go through these to reasonably ensure that they are consistent with the responsibilities an individual has as Senior Managers or under the Certification Regime.

Fitness and Propriety

SM&CR extends the ‘Fit and Proper’ test to cover Certification Staff and non-approved Non-Executive Directors as well as Senior Managers. Assessment of fitness and propriety needs to take place at least annually and should consider the following: honesty, integrity and reputation; competence and capability; and financial soundness.  However, RWA’s findings suggest that some 35.7% of firms have yet to develop or introduce the appropriate fitness and propriety assessments required under the new regime.

Under SM&CR, firms and candidates for Senior Management Functions (SMFs) must declare if the candidate has a criminal record, to the maximum extent allowed by law. Whilst some 67% of firms stated that they required Senior Managers to declare a criminal record, only 55.4% of firms interviewed had introduced procedures for the checking of criminal records for SMF-holders.

The new regime also requires ‘regulatory references’ for new appointments to Senior Manager positions and for new recruits who will hold a Certification Function. It also applies to the appointment of non-executive directors. These rules have been introduced to improve the standard of conduct within the financial services sector and to help prevent individuals with unsatisfactory conduct records moving from one firm to another.

Firms need to reasonably ensure that robust record-keeping procedures are maintained. Information on individuals should be kept up to date, with details of any ‘new, significant information’ added where necessary. Again, RWA’s research indicates shortcomings, with only 25.5% of firms interviewed stating that they had systems in place for the new regulatory referencing requirements.

Conduct Rules Training

Another key element of SM&CR is the Conduct Rules. Staff within the scope of the Conduct Rules must be trained on what the rules mean in relation to their individual job role. Firms will have until December 2020 to put in place processes to comply with the training and reporting requirements and to train staff, who do not fall within the Senior Managers and Certification Regime, on the implications of the Conduct Rules. Senior Managers and Certification Staff must be trained on the Conduct Rules by December 2019. A record should be kept of staff training in this respect.

However, according to our findings only 14% of firms say they have trained all relevant staff on what the conduct rules mean in relation to their individual job role.

How can we help?

Overall, what we have learned is that many firms are not fully prepared for SM&CR. There appears to be a lack of planning, with many firms not taking a lead in preparing for the new regime. With the only two months to go, firms should ideally be better placed to meet the requirements of the new regime.

RWA is now offering a SM&CR ‘helpline’ which will give firms access to our SM&CR team for £50 per month for 30 minutes support. The team can help with any aspect of SM&CR implementation, including areas such as HR/employment law, conduct rules and compliance, certification, and training and competence. Over a twelve-month period, this is the equivalent of 4-5 hours of practical guidance.

If you’d like to find out more about how we can help you, please get in touch at or 01604 709509.

A Healthy Culture

SM&CR is about improving conduct and creating and maintaining a healthy culture in the financial services sector. It is an opportunity to embed positive values and behaviours throughout the organisation from the board all the way through to the newest inductee.

About the author

Ash was Managing Director at RWA from 2018. He had over 15 years’ experience in the legal and compliance field and ten years in broker sales and leadership roles in national and global insurance firms. Sadly, Ash passed away suddenly in August 2021. 

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