Introduction

On 30 March 2023, the UK government and regulators initiated a review of the Senior Managers & Certification Regime (SMCR) through a Call for Evidence from Her Majesty's Treasury (HMT) and a joint Discussion Paper (DP23/3) from the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). The review aims to assess the effectiveness, scope, and proportionality of the SMCR, which was created in response to recommendations from the Parliamentary Commission on Banking Standards (PCBS) in the aftermath of the 2008-9 global financial crisis and the 2012 LIBOR scandal.

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Background

The SMCR promotes the safety and soundness of regulated financial services firms and reduces harm to consumers and the market by holding individuals accountable, particularly Senior Managers. Introduced in 2016, the regime has since been extended to various financial institutions, with provisions for Financial Market Infrastructures in the Financial Services and Markets Bill 2022/3.

December 2022 saw the announcement of a review of the SMCR as part of the Edinburgh Reforms. The review will gather views on possible enhancements to the regime.

Call for Evidence

The Call for Evidence (CfE) from HMT asks 11 questions focused on four central topics:

1. Assessment of the SMCR's delivery against its original aims and insights into respondents' experiences.
2. International competitiveness and learning from other jurisdictions' accountability regimes.
3. Specific aspects of SMCR that give rise to concern, such as compliance requirements for authorisation of Senior Managers and the frequency of certification reviews.
4. Scope of the regime, including whether certain activities of firms should be removed from the SMCR.

Discussion Paper

The FCA and PRA's Discussion Paper presents 22 questions for respondents, exploring the three components of the SMCR:

1. Senior Managers Regime: The regulators seek feedback on the approval process, the 12-week rule, the range of Senior Management Functions, Prescribed Responsibilities, the effectiveness of the Duty of Responsibility, and the role of Statements of Responsibilities and Management Responsibilities Maps.
2. Certification Regime: The regulators ask for views on the effectiveness of the regime in ensuring individuals are fit and proper, the appropriateness of the Directory of Certified and Assessed Persons, and the requirements for keeping it updated.
3. Conduct Rules: The Discussion Paper invites opinions on the effectiveness of the Conduct Rules in promoting good conduct throughout a firm.

Timeline and Expectations

Responses to the CfE and the DP are requested by Thursday 1 June 2023. Although the review is unlikely to result in radical changes to the SMCR, it may lead to targeted enhancements, particularly in relation to the authorisation process and proportionality.

What it means for you

If you want more information on the review and how it could affect your firm, reach out to MEMA for more information on how we can support you in preparing for the new changes.