Solo regulated firms unaware of SM&CR requirements

Morton Fraser Senior Solicitor Nicole Moscardini
Nicole Moscardini
Senior Solicitor
18 November 2019

The SM&CR will apply to all Financial Services and Markets Act (FSMA) authorised firms from 9 December 2019

Most business people, and certainly anyone who has contact with the financial services sector, will be aware of the Approved Persons Regime ("APR").  However, over the past couple of years the APR has been replaced by the Senior Managers and Certification Regime ("SM&CR").

The SM&CR was introduced following the 2008 banking crisis which highlighted significant conduct failings within the finance sector.  In the aftermath of that the Parliamentary Commission for Banking Standards recommended a new accountability framework focussed on senior management and firms taking more responsibility for employees being fit and proper and the SM&CR was born.  According to the Financial Conduct Authority the aim of SM&CR is to "reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence".

Initially SM&CR was applied to the banking sector, however changes were made to legislation in 2016 requiring it to be extended to all FSMA authorised firms.  From 10 December 2018 it applied to dual regulated insurers (those regulated by both the PRA and the FCA) previously regulated under the APR and PRA's Senior Insurance Managers Regime. Solo-regulated firms (regulated by the FCA only) will be affected from 9 December 2019. 

However, a recent study which surveyed 250 insurance brokers found that just 56% were aware of the SM&CR.  Only 4% said they knew everything they needed to know ahead of implementation showing a worrying lack of engagement by firms in the sector.  On a practical level, the SM&CR involves firms identifying individuals who have overall responsibility for the business as "senior management function" holders.  With only a few weeks to go until implementation 31% of brokers said not only had they not identified holders of the role, but they didn't know what the position was.  It is critical that any affected organisations take the necessary steps in advance of 9 December.

The FCA has produced guidance for affected solo regulated firms.


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