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    Is SM&CR working?

    accountability SM&CR audit trail
    Author: Priscilla Gaudoin
    CheckCircle

    Author: Priscilla Gaudoin - Head of Risk & Compliance - first published in August 2023

    CheckCircle

    Topics: Accountability, Regulatory Strategy

    CheckCircle

    Regions and Regulators: UK, FCA, PRA

     Recognised CPD Badge (transparent) 24 (1)SM&CR Under Review: What You Need to Know 
    The SM&CR review was announced as part of the Edinburgh reforms towards the end of 2022, with HM Treasury indicating that “some stakeholders have raised concerns about their experiences of specific aspects of the regime.” Consequently, the government is assessing whether the regime is meeting its objectives and how improvements could be made to further enhance the regime. The Call for Evidence was issued in March and closed on 1st June 2023. At the same time, the FCA and PRA issued their own discussion paper (DP23/3) looking at the effectiveness of the regime and which specific areas of the regime might warrant enhancement.
     
    What’s new?
     

    This isn’t the first review of the regime. Since the regime was first implemented in 2016, there have been various reviews undertaken by the regulators as well as industry bodies. We now have a joint review taking place which emphasises the importance of this regime to the UK, and perhaps more wide-scale reform. 

    Challenges of SM&CR: 

    Those earlier reviews highlighted that there is broad support for the regime, but questions are asked about its effectiveness, as well as its impact upon the UK’s ability to attract investment into the UK and bolster its status as key global financial services hub. 

    Firms have indicated that the regime has encouraged greater understanding of internal structures and responsibilities. It has also improved management and outcomes for both businesses and their customers. 

    The government is now keen to explore how the regime can continue to meet its objectives without causing major upheaval to the industry. At the same time, it wants the UK to remain attractive to international investment to drive economic growth. The message from the PRA and FCA in their discussion paper is similar.

     
    The above sets out very clearly the original objectives of the SM&CR regime. If these are the aims of the regime and feedback has indicated that it is encouraging better conduct, do we need to change the regime?
     

    According to some firms, whilst the regime isn’t necessarily a problem, the practicalities of the regime can have an adverse effect on business. 

    What changes are needed? 

    We gather from the previous feedback that most firms are largely supportive of the regime and have seen the benefits it offers both them and their customers. However, like all new processes, it’s always a good to pause and review the situation to see what is working and what might be improved for the best. With one eye on effectiveness of the regime and another on the wider UK economy, what’s best for the UK?

    Industry's concerns
     

    Industry’s concerns about the regime tend to focus on the following areas: 

    1. Delays by FCA in approving senior managers
    2. Breadth of coverage for the certification regime
    3. Levels of scrutiny for different firms
    4. Interaction with similar international regimes
    5. Frequency of certification review 

    The above have been addressed to some degree.

    Over the last 12-18 months, we’ve seen the regulator on a major recruitment drive increasing its headcount to address issues in its authorisation teams, etc. Applicability of the regime and its impact upon firms will differ. That’s part of the proportionality of the regime. However, it can raise administrative issues for smaller firms who need to demonstrate compliance too. 

    Wider concerns seem to centre around the certification regime. Those firms that operate globally may need to comply with similar accountability regimes in various jurisdictions. This poses challenges to firms as UK requirements may be more stringent than other regimes, and firms may find UK executives responsible for activities usually undertaken by overseas executives. It also poses the additional challenge or risk of attracting overseas talent to the UK. Due to the broad applicability of the certification regime, it does come with a degree of administrative burden. Maintaining data and records can be labour intensive and time consuming, especially when you consider the requirement to maintain the FCA directory of certified and assessed persons. 

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    About the Author

    In a career spanning 30 years, Priscilla has worked as a consultant, CCO and MLRO providing regulatory oversight and advice to firms across the financial services industry. She is responsible for our thought leadership programme, writing regular articles and white papers, and hosting webinars on a variety of regulatory matters.
     
    She is a Fellow of the International Compliance Association, a certified GRC practitioner, and a member of the Institute of Risk Management.
     
    Contact Priscilla