Our engagement with asset managers has identified some of the challenges for firms implementing the Senior Managers and Certification Regime (SMCR) and where the opportunities lie.
The extension of the SMCR from banks to the rest of the Financial Services industry was announced in July this year. Around 47,000 additional financial services firms and 200,000 individuals are likely to fall within the scope of SMCR. Whilst implementation may be a challenge for some firms, those firms that take this opportunity to enhance their arrangements will be in a position to better serve consumers, capital markets and their employees.
Several key concerns, of the asset managers we spoke to, include:
Firms have stressed the need for proportionality. Some argued their firms are monoline, selling one product and with simple structures, therefore despite their size, they didn’t feel the enhanced regime is proportionate. Other firms with many legal entities may sit between core and enhanced requirements, which adds complexity. But overall there was concern about whether core and enhanced offered enough scope for proportionality.
The complexity of dealing with a number of regulations at the same time was a key concern for many across the sector. There is the potential for duplication and rework if firms don’t plan this carefully and many resources will be constrained by existing deadlines and regulatory change programmes.
Some firms considered an undue weight in the core regime on control, rather than versus business accountability, where the risk taking is owned. Firms were concerned that some senior management, responsible for risk taking decisions, will not be within the core regime as Senior Managers.
A number of firms were having difficult conversations with individuals who may be impacted by the regime. The challenge for firms is to provide these individuals with enough ongoing advice and support.
Increased focus placed upon firms to ‘explicitly’ demonstrate value for money, as set out in the asset management market study, and the Consultation Paper 17/18 firms are to identify an individual responsible with overall responsibility for ‘value for money’. Firms are not clear on what this means and what changes may be required within existing product governance processes to accommodate this.
Having worked with numerous Banks to respond to and implement the SMCR, KPMG believes asset managers should seek to learn from this experience and see this as an opportunity to bring about positive cultural changes to the way in which they conduct their business. Done well, the SMCR can genuinely improve the effectiveness of how a firm is organised and governed in addition to improving accountably across the firm.
The Financial Conduct Authority’s (FCA) consultation period for the SMCR closed on 3 November and a technical paper is expected to follow with more detail. Although the deadline for implementing the SMCR has not yet been set, our experience of working with banks shows how vital it is to be proactive in ensuring firms are set up correctly to manage the transition.
There are a number of ways in which KPMG professionals can help provide support to firms to ensure they are prepared for the SMCR.
Please contact us to find out more.