Independent review and analysis

Extension of the Senior Managers & Certification Regime

In October 2015, HM Treasury announced its intention to extend the Senior Managers and Certification Regime (SM&CR) beyond Banks and Building societies to all firms within the financial services industry. The Financial Conduct Authority (FCA) has now published proposals to extend the regime to almost all regulated firms.

It has been widely publicised that the FCA favours the approach of individuals being accountable for their conduct and competence and the new regime will strengthen that policy. It also represents a core part of the regulatory strategy to help reduce potential harm to the consumer and strengthen market integrity as a result.

The proposed baseline of regulatory requirements, which will apply to all firms irrespective of size, is qualified by the statement from the FCA which states “We will ensure the regime is proportionate according to the size of the firm.” However, it is not simply the size that will dictate the oversight position, but a combination of size, complexity and potential impact on consumers or market sectors which will attract an “enhanced regime.” Consultation on the changes is now taking place – see FCA CP17/25.

Firms will clearly have to ensure that they meet the baseline requirements, by considering their existing structures, corporate governance and individual responsibilities to ensure they comply with the new legislation. They may also wish to undertake an independent review to assess the potential risks their activities may have on consumers and how to mitigate against regulatory intervention.

We believe that proportionality will ultimately apply, but anything a firm can do to prove commitment to the new regime in both spirit and practise will pay off. Prevention rather than cure should be the focus. We are firmly engaged in the process of helping various sized firms consider their own positions and have a team of experts ready to help. Please give us a call if you wish to discuss this further.

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