HR implications of the SMCR’s extension

When the Senior Managers and Certification Regime is extended in December 2019 to more than 40,000 UK financial services firms, there are set to be profound ramifications for HR policies and procedures

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When the Senior Managers and Certification Regime is extended in December 2019 to more than 40,000 UK financial services firms, there are set to be profound ramifications for HR policies and procedures

From 9 December 2019, the Senior Mangers and Certification Regime (SMCR) will apply to all FCA solo-regulated UK financial services firms. The SMCR, which already applies to banks and building societies, was designed by the FCA to hold senior individuals to account more effectively, to encourage individuals to take more responsibility for their actions, and to make it easier for regulators and employers to hold individuals to account. After the rules come into force, firms have until 9 December 2020 to assessed certified staff as ‘fit and proper’ and issue certifications, and to train other relevant staff on the Conduct Rules.

The SMCR comprises three main parts, all of which will have significant ramifications for HR policies, procedures and processes.

 

Senior Managers Regime

  • Introduces new senior management functions (SMFs) and ‘prescribed responsibilities’, which must be allocated to SMFs
  • Each SMF must have a statement of responsibility and a duty of responsibility
  • Firms must ask the FCA to approve the appointment of an individual as an SMF. This process includes undertaking a criminal record check

 

Certification Regime

  • Firms will be responsible for annually assessing and certifying the fitness and propriety of key staff (including senior managers) to carry out ‘certification functions’
  • This requirement replaces regulatory pre-approval for certain individuals
  • Firms must issue regulatory references to a person’s new employer if that person is taking on a certification, SMF or notified non-executive director (NED) role
  • Information about certified staff must also be loaded onto the public Directory (along with information about directors who are not performing SMFs)

 

Conduct Rules

  • New Conduct Rules replace the Approved Persons Regime, and apply to a broader range of staff than the previous regime
  • Tier 1 individual conduct rules apply to all employees, excluding ancillary staff who are not involved in regulated activities
  • Tier 2 senior manager conduct rules apply to people in SMF positions, and require them to take ‘reasonable steps’ to control their areas of responsibility
  • Conduct rule breaches must be reported (there are different requirements depending on the individual’s role)

 

Impact on HR

The impact of the SMCR on HR teams is expected to be significant. Banks and building societies’ experiences of meeting the SMCR’s requirements suggest the following HR activities will be affected:

  • Recruitment
    • Role profiles must be created
    • Competence assessments and pre-employment screenings must be carried out, and the results recorded
    • Certification of a candidate’s fitness and propriety will be required before they are hired (this will need to be noted in job descriptions and adverts, too)
  • Induction and L&D
    • Onboarding programmes will have to be adjusted to meet SMCR requirements
    • New training courses will have to be created and carried out, so all staff understand the new Conduct Rules and how these rules apply to their roles (non-completion must also be monitored and addressed). The FCA has stressed that there must be clear evidence that Conduct Rules are mapped to company values, and that Conduct Rule training is tailored to suit various job roles
    • Individuals’ certification may need to be reassessed if they change roles
    • You may need to certify competence in relation to new products and skills
  • Performance management and appraisal
    • You must have a process in place for annual self-certification of fitness and propriety, non-certification must be addressed, and robust records must be kept
    • Processes for reporting conduct breaches must also be in place
  • Role changes
    • Succession plans will need to be more detailed – especially for SMFs
    • Competence assessments and certification will be required before an individual takes on a new role (managers will also need to be trained to identity if certification is required)
  • Exit/offboarding
    • Regulatory references must be issued to an individual’s new employer (if employed in a certain role)
    • Leaver records must be maintained for six years

 

How can technology help with SMCR compliance?

While technology can aid SMCR compliance, “there is no technology that ‘solves’ the SMCR,” notes consultancy Deloitte. “Fundamental processes and structures need to be established at the outset and then technology options considered to help embed these… The most common amendments have been to core HR systems to flag Certified roles and embed Certification steps into annual performance reviews.”

 

What should firms do now?

“Early engagement is crucial in ensuring that firms are thoroughly prepared for the extension of the regime,” says Deloitte’s report. “It is imperative that firms do not underestimate the amount of work required to ensure compliance with the new regime.”

Your first port of call for understanding the scope of the SMCR, and how it applies to your company, should be the guidance available on the FCA’s website. HR departments will need to liaise with senior stakeholders, and their compliance, risk and legal colleagues, to understand the scope of change required, map out timelines, and assign tasks and responsibilities.

You may also wish to seek external support from legal or compliance experts, or your HR solutions provider, to understand the SMCR’s requirements and what steps you need to take, and what technology you may need to implement. Many HR software providers – including CIPHR – are developing tools to specifically help HR teams comply with the SMCR.