Will SMCR increase your risk of an FCA fine?

Sep 22nd '17

The Financial Conduct Authority (FCA) have given a speech about the new Senior Managers and Certification Regime (SMCR).


Reporting on the speech, almost all media have focused on the regulator’s desire to downplay the regime representing a ‘culture of fear’, where more frequent fines and individual punishments drive compliance.


As Fund Strategy magazine put it, ‘The FCA has attempted to quell suspicion that its new Senior Managers Regime is trying to ensure compliance through more frequent fines and punishment for individuals’.


So – will the new regime increase your risk of a FCA fine?


Is the SMCR all about fines and punishment?

The FCA is keen to say it’s not. This week its Director of Supervision – Retail and Authorisations, Jonathan Davidson, gave a speech to the City & Financial Summit in London.


In it, he focused on the importance of cultural compliance – a theme the FCA is keen to reinforce – saying that ‘An ethical culture can be more powerful than one based solely on financial incentives’.


This is nothing new, and something we have looked at before, reporting on another speech by Davidson last year, where he highlighted the need for governance to permeate through every firm’s culture. FCA Chief Executive Andrew Bailey has also encouraged banks to adopt more open cultures where challenges to current practices are encouraged.


This seems to be reflected in the number of financial penalties dished out by the regulator, with the first half of 2016 seeing fines plunge compared to previous years.


In fact, it’s fair to say that rather than being focused on fines, the SMCR is all about accountability.


In his speech, Davidson said that he likes to call it ‘the Accountability Regime’. He explains that he and the regulator do not believe that the fact that ‘the costs of misconduct in fines and redress are now a very significant disincentive to misconduct’ is enough in preventing poor behaviours.


Instead, the personal accountability that the regime introduces, and the focus on compliant cultures will – he believes – deliver more in terms of good governance than the threat of financial penalties.


What does this mean for your regulatory compliance?

With the SMCR soon to apply to nearly all regulated firms, it’s likely that it will impact you.


The regime has five conduct rules for all employees, and additional requirements for senior managers. You can read more about what these entail here.


Firms must all follow the five conduct rules. Senior managers also need to follow the four additional rules.


Aside from these explicit rules, the general expectations around culture and self-imposed good governance are clear.


There are some clear actions you can take to achieve this compliant culture.


  • Make sure the message comes from the top – an ethical culture needs a ‘do as I do’, not a ‘do as I say’ approach
  • Stress the regulatory push for self-governance
  • Emphasise the brand benefits of a compliant ethos
  • Make compliant materials easy to find, for on-point financial promotions and presentations
  • Consider mandating compliance approval via automated workflows to make sure no breaches slip through the net


Making sure you embed good behaviours within your business will help you to meet the regulator’s requirements on fair, clear and not misleading financial promotions that deliver  its desired consumer outcomes.


The SMCR – more about personal pride than financial penalties

Overall, the message from the FCA seems to be that the new regime – whatever you choose to call it – is more about self-imposed good behaviour than punitive fines.


Source: Perivan Technology


What do we do?

At LS Consultancy, we offer a complete solution with a range of cost effective, regulatory compliance and marketing products and solutions that are uniquely suited to supporting firms.


Explore our full range today.