SM&CR solo-regulated firms: what do you need to know?

Jun 14th '19

In less than six months – on 9 December 2019 – the Senior Managers and Certification Regime will be extended to apply to solo-regulated firms.


What does the new regulation mean, and if you are a solo-regulated firm, what do you need to do to comply?


What the SM&CR means for firms

The Senior Managers and Certification Regime first began coming into force in March 2016. You can read more about the Regime and what it means for firms in our blog looking at how firms could prepare for the new requirements.


In July 2017, the regulator announced plans to extend it to almost all regulated firms.


The Regime aims to ‘reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence’.


Two key ways it hopes to achieve this are by:


  • encouraging a culture of staff at all levels taking personal responsibility for their actions.
  • making sure firms and staff clearly understand and can demonstrate where responsibility lies.


On 9 December 2019, as part of the FCA’s ongoing push towards greater accountability, the regime comes into force for solo-regulated firms, with rules on prescribed responsibility for managers coming into effect at the same time.


Who does the 9 December deadline apply to?

The extension to the regulation affects almost every solo-regulated firm. ‘Solo-regulated’ means firms governed only by the FCA (insurance providers that are dual-regulated were brought under the SM&CR in December 2018).


It will apply to those from very small firms (including sole traders and limited permission consumer credit firms) to some of the largest global firms.


The SM&CR will apply to all FSMA authorised firms, as well as to branches of non-UK firms with permission to carry out regulated activities in the UK. An article in Professional Adviser suggests that this amounts to around 47,000 firms in the UK.


What should solo-regulated firms be doing to comply?

  • Work out exactly who your senior managers are. Although this might seem obvious, it’s something that has taken a significant amount of time and debate for many firms.


If your firm has a complex structure, or has overseas operations or management, don’t underestimate the time this first step might take.


  • Make sure everyone has clear responsibilities. Ideally, each responsibility will be allocated to one individual; the FCA prefers this to accountabilities being shared – but however you manage it, each senior manager remains wholly accountable for their responsibilities. It’s essential that you have a senior manager accountable for SM&CR and for important conduct and prudential risks.
  • Document all your decisions and accountabilities. Every senior manager has to have a Statement of Responsibilities, clearly setting out what they are responsible and accountable for.


A proportionate approach

The FCA says in its update that it is ‘extending the SM&CR in a way that is proportionate to the size of the firm’.


As a result, the SM&CR has three categories:


  • Limited scope: this will apply to firms who already have exemptions under the Approved Persons Regime. These firms will be exempt from some baseline requirements and will typically have fewer senior management functions.
  • Core: firms in this tier will have to comply with the baseline requirements.
  • Enhanced: this will apply to a small number of firms whose size, complexity and potential impact on consumers or markets warrant more attention. These firms will have extra requirements.


How can I find out my firm’s SM&CR category?

The regulator will contact firms with its assessment of their SM&CR category, based on the information it holds. This assessment is indicative, though, and firms are responsible themselves for determining the category they fall into, based on the rules.


Any firms that disagree with the assessment made need to tell the FCA.


The regulator has created a firm checker tool, with a series of questions that firms can work through to determine which category they fall into. The FCA’s SM&CR Guide for solo-regulated firms also has information to help firms work out their category. The SM&CR checklists for solo-regulated firms will also help.


Firms are able to ‘opt up’; to be listed under the Enhanced regime if that’s where they would prefer to be categorised. Section 12 of the regulator’s SM&CR Guide has more information on this.


What other resources are available to help firms plan for the regime?

Earlier this year, we shared a video where senior business leaders discussed their experiences of the SM&CR to date. The video has useful advice and first-hand experience of implementing the regime.


The FCA’s SM&CR Guide for solo-regulated firms and finalised guidance will also be useful in helping all firms to prepare.


Making accountability and good governance the way you do business

One of the SM&CR’s core aims is to encourage firms to embed good governance, and make accountability and transparency second nature. Doing this requires instilling a compliant culture throughout your organisation – something that can be a challenge.


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