Up close and personal

The Senior Managers and Certification Regime (SMCR) first hit private equity managers in December 2019, moving towards an emphasis on individual accountability, minimising harm to consumers and promoting security in the financial industry.

Four years later, the FCA and HM Treasury have published a discussion paper and a call for evidence respectively, which make up the consultation papers.

If you were hoping that this development would mean an end to the regime, you’ll probably be disappointed.

Sources have surmised that the consultation is politically motivated and has likely come about as a result of the Edinburgh reforms released at the end of last year, targeting the UK’s competitiveness and attractiveness globally. 

Still, the consultation offers an opportunity to provide feedback to the FCA, which could trigger outcomes relating to improving efficiency of the approval process.

Question time
The papers ask respondents whether the original SMCR objectives are being met and whether it really promotes individual accountability.

The discussion paper comprises 22 questions, with the most salient to fund managers likely being:

• Effectiveness of fitness and proprietary requirements in appointing senior managers
• Appropriateness of scope of regime – are the definitions clear?
• Process improvement for senior management function approvals
• Quality of the directory – are the appropriate individuals captured?
• Usefulness of the conduct rules in place.

The consultation paper delves into other themes but it is worth noting that since inception, there have been no full reviews of the regime. This means that some questions are broad and apply to bankers, insurers and solo-regulated firms.

Looking back to look forward
The implementation of the regime has been far from plain sailing, as firms have had to cope with an increase in bureaucratic measures as part of the hiring process of senior managers.

Long waits for application approvals and extensions of the so-called ‘12-week rule’, plus ambiguity over role definitions, have been painful to deal with.

A possible outcome of the consultation could be that the 12-week rule is extended to about 36 weeks. Andrew Poole, director at ACA Group, shares more: “We’ve seen the FCA taking three months to approve an application, which means you’ve got firms falling foul of this 12-week rule – the time it should take to fill a senior level position – through no fault of their own.”

Another area of discussion is the ambiguity around what counts as non-financial misconduct. Nathan Willmott, partner at Ashurst, elaborates: “Where the conduct rules begin and end in terms of work-related activities remains unclear and is generally misapplied by many firms. In the guidance, there are no examples of the various types of non-financial misconduct that would amount to acting without integrity or not acting with due skill, care and diligence. I think there is the scope to amend both the Act and the relevant rules, which would help to create a more level playing field across the industry.”

The response deadline is 1 June 2023. Responses can be submitted via an online form or by emailing SMCR_DP@fca.org.uk.