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Article:

2019 Regulatory Business Plan: How does this year’s FCA Business Plan impact you?

04 June 2019

Since our last communication, the FCA have published their annual business plan, noting a focus on the changing landscape of governance over the coming year. As the FCA are seeking to increase the accountability of important decision-makers within firms, even greater emphasis is being placed on the implementation of the Senior Managers and Certification Regime (SM&CR). It is important that firms have a robust understanding of the requirements to ensure effective implementation, yet recent surveys suggest the majority of firms set to be affected, have not begun implementation of SM&CR despite their only being seven months until SM&CR replaces the Approved Persons Regime for most firms on 9 December 2019.

What the regulator expects

From December 2019, the SM&CR will be extended to all FCA-solo regulated firms, the majority of those firms being categorised as a Core SM&CR firm. While the SM&CR may seem uncomplicated to map across to your firm, this FCA video warns that the SM&CR implementation work requires a lot of planning, time and resource. The video highlights the common misperception of the SM&CR as merely assigning an individual as responsible for a business area, when in reality there is complications in establishing with clarity how decisions are made and who is accountable and willing to accept duties of responsibility.

If you begin to plan for the SM&CR now, you can ensure a thorough understanding of what the regulator expects is communicated across the firm, and the firm’s leadership are prepared for any increased responsibility they may assume.

Points to consider

Our last email highlighted the importance of the components of the SM&CR, and the areas of their business that could be affected, and that firm-wide communications of changes should be made so staff are made aware about the impacts changes could have on their particular role. The blog advised on how assessment of existing and conduct risk frameworks could provide a good platform for integrating the SM&CR. This month, we will consider the intentions set out by the FCA in their annual business plan, and how the points raised could influence implementation of the SM&CR in financial services firms.

FCA Business Plan

The FCA published their annual business plan last month, setting out one of their key governance priorities for the year as being the extension of the SM&CR to all FCA-authorised firms. This carries an objective of embedding consistent standards for personal conduct across all individuals working in financial services, as well as highlighting the individual accountability of senior managers under SM&CR should something go wrong. The FCA commit to working with firms and trade associations to ensure that the regime is implemented effectively and firms and individuals understand what they need to do.

Remuneration and SM&CR

One of the cross-sector priorities stipulated in the Business Plan is ‘Appraisal of remuneration practices’. In the past remuneration was focused on banks and investment firms mostly. Now, as more firms are brought in scope of SMCR, they should be looking at remuneration approach more closely. The FCA identify remuneration as being potentially encouraging to staff to act in ways that could harm consumers or compromise market integrity, and remuneration should therefore be considered as the other side of the risk/responsibility coin. The FCA will be taking a “broader look at the role that bonuses play in driving behaviours and other non-financial motivating factors”, as well as how remuneration structures can ensure approaches to incentivising staff are all reinforcing healthy cultures.

While there is now a greater emphasis on the SM&CR, the core principles remain the same for enhanced, core and limited firms, however the number of requirements, Senior Management Function’s and Prescribed Responsibilities is dependent on the type of firm.

Find out more about the Senior Managers and Certification Regime here

How we can help

With our regulatory expertise and industry knowledge obtained whilst assisting Banks and Insurers with implementing the regime, our Financial Services team is well prepared to advise and assist firms on the extension of the SM&CR to all other FSMA authorised firms. We offer a range of services to help firms implement the SM&CR that are tailored to a firm’s SM&CR category, business model, governance structure and operations. Find out more.

If you require assistance or have any questions about the SM&CR, please do get in touch.