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SMCR: The tricky implementation phase

09 July 2020. Published by Lucy Kerr, Senior Associate

The Senior Managers and Certification Regime (SMCR) came into force for all financial services firms solo-regulated by the Financial Conduct Authority (FCA) on 9 December 2019.

The SMCR replaces the previous APER regime under which the FCA had oversight of the individuals working in the financial services industry. There is a one year implementation period for firms to make the changes required by the SMCR, which expires on 9 December 2020.

Why does it matter?

As of 9 December 2019, the SMCR applies to approximately 47,000 solo-regulated financial services firms. It represents a seismic change to the process by which individuals working in these firms are supervised by the FCA. The individuals are divided into the following categories under the SMCR and each is treated differently by the FCA:

  • Senior Managers: must be directly approved by the FCA to carry out their functions (as under the previous APER regime);
  • Certification employees: employees who do not carry out senior management functions but can have a significant impact on customers, the firm and/or market integrity. They are no longer required to be approved by the FCA, but must instead be certified by the firm on an annual basis as being fit and proper to carry out their role(s); and
  • Other employees: other than ancillary staff (such as receptionists) all other employees, in addition to the senior managers and certification staff are required to comply with the Conduct Rules set by the FCA, which include obligations such as acting with integrity and acting with due skill, care and diligence.

By 9 December 2020, firms are required to action various changes required by the SMCR. In particular, they are required to have completed the certification process for all “certification employees” and notified the FCA of their identities to be included in the FCA’s newly created directory. The Conduct Rules will also apply to all relevant staff from 9 December 2020 as well.

What actions should you take?

Solo-regulated firms to whom the SMCR began to apply on 9 December 2019 should undertake the following key steps before 9 December 2020:

  • Ensure that the process of certifying all relevant employees as fit and proper to carry out their roles has been conducted and all certificates have been completed;
  • Notify the FCA of the names of the certification employees to be added to the FCA’s directory;
  • Provide appropriate training to all staff regarding the Conduct Rules and their implications before they come into force on 9 December 2020.

This summary forms part of our annual Regulatory Radar – an overview of the key regulatory changes you need to have on your radar, from SMCR implementation to the new Stewardship Code and post-Brexit data transfers.

Click here to read more.