Written by:
Simon Hills, Director, Prudential Policy, UK Finance


UK Finance and AFME submitted their joint response to the FCA’s consultation on extending the senior managers and certification regime (SMCR) last week. At the moment only banks and insurance companies are subject to the regime but in a year or so, once implementation technicalities have been finalised, all regulated financial services firms will be within scope.

Our response supported this as we think it is important that all financial services providers are subject to the same expectations of individual accountability and conduct in the interest of promoting greater trust amongst their customers and in society generally.

But as the banks have found, implementation is a resource intensive task – and they have already been subject to the regime for more than 18 months. The FCA’s own estimates of the proposed roll out exceed £500 million.

We welcomed the FCA’s commitment to a proportionate regime which sets core requirements that will apply to the great majority of the 47,000 firms that will soon have to comply with the SMCR. A greater range of enhanced requirements will apply to about 350 firms. The FCA is proposing that the decisions to classify a firm as ‘enhanced’ with the more onerous regulatory expectations that come with that classification should be based on a number of criteria, with significant weight being given in the case of asset management firms to the value of Assets under Management (AUM).

Our response challenged this test as AUM do not represent the actual assets of a firm and can change quickly in line with market movements. Neither does size necessarily indicate a higher likelihood of poor culture. Our view is that triggers should ensure that the true risk, complexity and interconnectedness of firms is properly represented when deeming certain firms as riskier.

Linked to this concern was our suggestion that the proposed maximum permitted 6-month transition period from core to enhanced should be extended to 12 months, because of the need to revisit governance arrangements and appoint and train Non-Executive Directors.

Another suggestion in the consultation paper was that firms should make publicly available the identity of people performing Certification Functions so that customers and potential customers of the firm can understand who they are dealing with. Whilst such an initiative could go some way towards replacing the FCA-complied list of approved persons on its Financial Services Register, our view was that a firm-specific lists would not be a true replacement.

Firms’ lists would not contain a full history employment history of each certified employee as the record for an individual would not ‘transfer’ if they moved roles. Furthermore, firms’ differing structures could mean that customers might interact with a Certified Person at one firm and a non-Certified Person at another firm to conduct the same business, potentially causing confusion in the customer’s mind.

As the implementation of the SMCR requires firms to certify that their staff are fit and proper to perform their roles, we concluded that given a firm is subject to the regime is sufficient reassurance to customers that they are interacting suitable and qualified staff able to meet their needs.

Despite these two concerns UK Finance and AFME are supportive of the widening of the scope of the regime and look forward to continuing to work with the FCA as the technical aspects of the roll out of the SMCR are developed.

Next steps for the senior managers and certification regime