The SMR regime came into force on the 7th March 2016 for individuals working in banks, building societies, credit unions and Prudential Regulation Authority (PRA) designated firms.
What is not apparent to many is that the legislation will be extended to cover all companies authorised under the Financial Services and Markets Act 2000 (FSMA) by 2018.
Senior managers must pass a fit and proper persons test, which will consider honesty, integrity, reputation, compliance, capability and financial soundness. Under the SMR, senior managers will have a statutory duty of responsibility to take reasonable steps to prevent regulatory breaches in their area of responsibility.
Overall, seventeen Senior Management Functions (SMF’S) have been defined. Each function needs to be clearly defined within firms, ideally in less than 300 words.
This should be present within the “responsibility map” firms are expected to produce describing their structure, size and complexity. This should also describe what management and governance procedures are in place.
This all adds a new dimension to an individual and a firm’s regulatory responsibility.
It is obvious why some senior managers and Non-Executive Directors are concerned with the potential impact of increased accountability. The stakes have been raised with the risk of individuals receiving heavy personal fines if they cannot show that they have taken reasonable steps to prevent wrong doing and unethical behaviour within their areas of responsibility.
The SMR represents a significant risk to financial services firms, if they are not fully prepared. Larger organisations may well be equipped to adapt to the changes, but many smaller firms who will be subject to the legislation in years to come, need to starting planning for the changes sooner rather than later.