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Eight lessons from the Senior Managers and Certification Regime Stocktake

In August 2019 the Financial Conduct Authority published a stocktake report of the embedding of the SMCR in banks since it was first introduced in 2016. Insurance companies are in their first year of the SMCR and all other regulated firms will be subject to the regime from December 2019. ICAEW’s Financial Services Faculty highlights 8 lessons from the review accompanied by a range of resources for tackling the challenges it presents.

FS-Mar19-Risk1. The SMCR can create a balancing act for non-execs

Some non-executive directors (NEDs) felt that the SMCR expects too much of them and that lines between executive and non-executive become blurred. This isn’t the FCA’s intention, and the oversight and challenge provided by NEDs is a key part of the regime. However, it is a big responsibility to be an NED in financial services, particularly in large firms.  

In February 2019 ICAEW published Information overload: effective boards and committees in financial services which provides practical recommendations to help NEDs cope with their responsibilities and challenges. 

2. Keep focussed on culture 

Culture needs to stay at the top of the agenda and be considered proactively rather than in response to crises like the LIBOR rigging scandal or PPI. Businesses need to understand how changes can be assessed and measured when change is primarily made to controls and processes. The FCA is looking a stronger tone at the top and an emphasis on a “speak up” culture. ICAEW’s report How whistleblowing helps companies looks at how to empower employees to speak up.

3. The FCA are unlikely to give more guidance around “reasonable steps” 

Individuals and firms would like more clarity here, but the FCA feels more guidance is not the answer and will not be more prescriptive. Firms should focus on:

4. Don’t underestimate the role of performance management

Performance management need to improve to ensure certified staff are being properly assessed. Assessment shouldn’t just focus on technical skills but also management skills and behaviours. ICAEW’s Business & Management Faculty have extensive resources on managing people.

5. Prioritise regulatory references  

Regulatory references were considered to need improvement in terms of quality and timelines. NEDs need to understand if their firms aren’t making use of this process and the risk that presents. 

6. Conduct rules need to be tailored to staff roles

Firms often use their values in performance assessment, so these need to be clearly mapped to the conduct rules in order to be effective. There needs to be a clear articulation of what conduct breaches look like, and staff need training. 

7. Work with regulators, don’t fear them

In the early days of the SMCR, the regulator found there was a culture of fear among firms, but healthy challenge and working with the regulators has helped to change this. Firms need to be pragmatic and open. If they’re too risk averse they may be less innovative and may struggle to increase diversity if they are too conservative about bringing in staff or non-executives from outside of the financial services industry.

8. Don’t forget middle management 

The FCA previously referred to middle management as “the permafrost” where culture change was the most challenging, and in some cases may take a generation. They observed that some firms are further ahead than others, often those with more exposure to the regulator, and more resources. 

In Culture and purpose in financial services we look specifically at the challenges of driving a consistent culture across difference levels and areas of a business. 

For our full range of resources on the Senior Managers and Certification Regime join the Financial Services Faculty at icaew.com/joinfsf

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