All firms should take note of the FCA’s latest feedback on SMCR implementation.
By Rob Moulton, Charlotte Collins and David Berman
In its latest piece of feedback on firms’ implementation of the SMCR, the FCA indicated that firms must improve their implementation of the Certification Regime and, most particularly, the Conduct Rules. While the FCA’s review focused on SMCR implementation within banks, which have been subject to the regime for more than three years, the findings are relevant to all firms, whether already subject to the SMCR or due to become so this December.
The FCA observes that firms are taking the regime seriously, and focusing on the spirit of the regime. Generally, there is a correlation between size, resources and regulatory interaction, and how mature firms are in their approach to the SMCR. However, the FCA has found that some firms seem to have been less successful in embedding the regime below senior manager level. The FCA considers that there is some room for further progress on the Certification Regime, and that there are potentially more significant weaknesses in the implementation of the Conduct Rules.
In relation to the Conduct Rules, the FCA has found that firms are not always tailoring training on the Conduct Rules sufficiently to reflect job roles. The FCA also did not find enough evidence of firms clearly mapping the Conduct Rules to their own values, and many firms were unable to explain what a conduct breach looked like in the context of their business. Firms have also found, through the regulatory references process, that other firms are not always consistent in recording breaches of the Conduct Rules.
Firms should take this opportunity to evaluate their implementation (or planned implementation) of the Conduct Rules, particularly their training programmes for Conduct Rules staff that do not fall within the Senior Managers Regime or the Certification Regime. It is crucial for firms to ensure that this training is appropriately tailored, and gives individuals a proper understanding of what “good” and “bad” looks like in the context of their particular role.
On the Certification Regime, the FCA notes that while firms tend to have robust frameworks in place to oversee their population of certified staff, it has not seen significant changes to performance assessment processes. Most firms could not demonstrate the effectiveness of their assessment approach, use of subjective judgement, or how they ensure consistency across the population. One example the FCA provides is that firms are not necessarily using the Certification Regime to test whether managers of certified staff are competent managers.
Firms should re-examine their assessment processes and consider whether these promote a robust and effective approach. Firms should consider in particular how they can ensure a uniform approach to certification, and that assessments really consider the key skills and attributes required for a particular role.
The purpose of the review was to understand whether there are any issues that warrant more focus from firms and the FCA. The FCA notes that this was not a full post-implementation review, and that it will not make any policy changes based on the review.
The FCA does, however, plan to increase its supervisory focus on the Conduct Rules. The FCA will also continue to build on the links between the SMCR and firms’ culture, having observed that it is not clear to what extent firms have linked the regime to culture. Therefore, all firms should be prepared for the FCA to test these areas with them in future.
Banks and insurers should be aware that the PRA announced in its Business Plan for 2019/20 that it plans to carry out an evaluation of the effectiveness of the SMCR this year, so there will be further scrutiny of SMCR implementation in the near future for these firms.
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