SMCR needs to be culture, not a checklist

By Richard Barnwell

The SMCR certainly cannot be ignored; firms should already be well advanced in their preparations for its roll out. It is not a regime which can be met by simply ticking off the requirements by the implementation date in December - it has to be fully embedded into a firm’s culture and operations.

The broking sector is diverse and there are no two firms which are exactly the same; however, there are recurring themes and challenges. The market has always had a requirement for good governance, but even for those firms which will view themselves as having a robust governance structure, rationalisation of structures and reporting lines may be required.

While adequate information is key to implementation, it can also become a challenge if it creates an information overload. Firms need to look at their governance structure and examine the role of the board and committees to ensure that the information provided is pitched at the right levels and can be both understood and challenged where appropriate.

The FCA has demanded good governance for many years but for those firms which do not have a robust governance structure, or cannot evidence they have such a structure, there may well be challenges with SMCR.

The regime suggested that people are at the heart of the regulations and firms need to have a strategy in place to both ensure and evidence that the people who fall under the regime are competent to carry out their roles. Staff who are subject to the regime’s conduct rules, including senior managers and certified staff, have to have been provided with training in their roles as well as advised of procedures that need to be undertaken for any breach of the rules.

Training will be scrutinised. Regulators want to know that the training being offered is applicable to the staff being trained. Is it relevant to the staff and the business?

Senior management focus

The onus on senior management is significant. The FCA wants a clear statement of responsibilities and senior managers have a duty of responsibility for those areas within their individual statements; they can be held individually accountable if something happens in their area of responsibility if steps have not or were not taken to address an issue. To avoid such scrutiny, a reasonable steps approach is needed, where you can prove that such steps were taken when the problem became evident. The board has a role in this but responsibility under the regime is personal, not collective.

The SMCR has certain prescribed responsibilities which need to be allocated to senior management; firms need to consider carefully which of the management team is best suited to carry out those specific responsibilities.

Firms cannot and should not underestimate the certification regime and they need to have the ability to respond to any challenge from the regulator. While many may have a system to implement the certification process, this needs to be clearly documented.

Simply having a framework in place and doing what is required will not be enough. The need for the SMCR to be embedded in the business is crucial. Culture is a hot topic that the FCA is very keen on. It is seeking to ensure that firms are taking steps to eradicate inconsistent or inappropriate behaviour. They need to satisfy themselves that a firm’s culture does not impact on its ability to operate.

Embedding a new culture

If the board and management are not living and breathing the regime they will be quickly found out. If you have been given responsibility, then you need to have proper oversight and understanding of what that will involve and how it will be evidenced.

This does take time and quite often money. The aim is to think that the regime is part of ‘business as usual’ and is embedded within the firm. The biggest mistake would be thinking this is a case of a ‘one and done’ exercise. If that is your approach, it may take some time for the regulator to catch up with you, but they will, and firms will find themselves in a difficult position if they cannot look the regulator in the eye.

However, it is not all bad news. As firms examine their processes and senior management responsibilities, we are seeing some positives. It is highlighting some over complicated governance rules; with this we are seeing a degree of positive change in firms. Committee structures have been examined and some committees have been disbanded after their role and impact have been challenged.