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Changes to the SM&CR for the Banking Sector

3rd September 2018

Changes to the SMCR for the Banking sector

As previously discussed, the Senior Managers and Certification Regime (SM&CR) was introduced back in March 2016 for banks, building societies, credit unions and dual-regulated investment firms and replaced the Approved Persons Regime (APR).

Just over two years on, the regulator published changes to the SM&CR for the banking sector. These include the following changes:

a new Prescribed Responsibility for the Conduct Rules, including ensuring staff are trained and that the FCA is notified of breaches, where required;

changes to the way the '12-week rule' operates, allowing for temporary appointments of senior managers; and

extending the partner senior management function to banks.

In addition, the FCA is proposing to add a new prescribed responsibility that all firms, including banking firms, will need to allocate to a senior manager, to make sure the firm trains its staff in the Conduct Rules and complies with the FCA’s notification requirements.

Overview of the SMCR:

As a reminder, there are three key parts to the Senior Managers and Certification Regime. These being:

the Senior Managers Regime;

the Certification Regime; and

the Conduct Rules

The Senior Managers Regime

The Senior Managers Regime, often shortened to SMR, requires that the most senior people performing key roles need FCA approval before starting their roles. These are referred to as ‘Senior Managers’ and their roles ‘Senior Management functions’.

As part of the SMR, every senior manager must have a written ‘statement of responsibilities’ that clearly details what they are individually responsible and accountable for.

Those roles that are senior management functions are set out in the FCA Handbook along with the PRA Rulebook. In addition, there are some specific responsibilities that firms need to give to their senior managers. These are known as 'prescribed responsibilities' and are to ensure that a senior manager is accountable for the SM&CR, key conduct and prudential risks.

As well as the above responsibilities, a Senior Manager must also be responsible for each of the firm’s business functions and activities also known as ‘overall responsibilities’.

Furthermore those firms within the Banking sector must provide responsibilities maps that lay out the responsibilities of their senior managers and their management and governance arrangements. In addition, firms must certify that senior managers suitable to do the roles that they have been assigned.

The Certification Regime

On the other hand, the Certification Regime (CR) applies to a firm’s employees whose role means it is possible for them to cause significant harm to the firm or to customers. These individuals don’t need to be approved by the regulator to perform these roles (known as 'certification functions') but the Firm must check and certify that they individuals are fit and proper to perform their roles, which must be done at least annually.

The Conduct Rules

The Conduct Rules are high level standards of behaviour that applies to almost all individuals within the banking sector. There are also some Conduct Rules that only apply to Senior Managers. Firms within this sector need to ensure that their staff know that the Conduct Rules apply to them and that they are sufficiently trained in their regard. Should a breach of the Conduct Rules occur then the regulator must be notified.

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