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SMCR: what should Senior Managers be doing now?

SMCR: what should Senior Managers be doing now?

From 9 December 2019, Senior Managers at FCA solo regulated firms will need to comply with the new Senior Manager Conduct Rules and the new statutory duty of responsibility. So what are the obligations and what should Senior Managers be doing now?

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Tom Brown

Partner, Global and UK Head of Asset Management

KPMG in the UK

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SMCR: what should Senior Managers be doing now?

What are the rules?

Everyone working within financial services, with few exceptions, is expected to comply with the 5 individual conduct rules. These are:

  • Rule 1: you must act with integrity
  • Rule 2: You must act with due skill, care and diligence
  • Rule 3 You must be open and co-operative with the FCA, the PRA and other regulators
  • Rule 4: You must pay due regard to the interests of customers and treat them fairly
  • Rule 5: You must observe proper standards of market conduct

In addition a Senior Manager must comply with four specific Senior Manager Conduct rules. These are:

  • SC1 :You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively (COCON 2.2.1)
  • SC2: You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant regulatory requirements and standards of the regulatory system (COCON 2.2.2)
  • SC3: You must take reasonable steps to ensure that any delegation of your responsibility is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively (COCON 2.2.3)
  • SC4: You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice (COCON 2.2.4)

What are the consequences of getting it wrong?

The regulator can take action against an individual Senior Manager for failing to meet the above behavioural standards and the cost of getting it wrong can have significant personal repercussions. The regulator may take a range of action against an individual ranging from issuing a private warning, publically censuring an individual through to imposing a financial penalty. In the most serious cases, getting it wrong can lead to an individual being prohibited from working in financial services.

Furthermore, following the introduction of the statutory duty of responsibility to take reasonable steps in May 2016, action can be taken against a Senior Manager where they are responsible for the management of activities in their firm, their firm contravenes a regulatory requirement in relation to those management activities and they as a Senior Manager, do not take such steps as a person in their position could reasonably have been expected to take to avoid the contravention occurring or continuing.

What will the regulator take into account?

The onus for proving a Senior Manager has breached either the conduct rules or the statutory duty of responsibility lies with the regulator who will consider whether the Senior Manager has taken relevant reasonable steps and have regard to the Senior Manager’s Statement of Responsibility.

When considering if the Senior Manager has breached the applicable conduct rules, the regulator will consider the following factors:

  • Whether the Senior Manager exercised reasonable care in considering the information available to them
  • Whether they reached a reasonable conclusion upon which to act
  • The nature, scale, and complexity of the firm’s business
  • The role and responsibility of the Senior Manager as per their Statement of Responsibility
  • The knowledge they had, or should have had, of regulatory concerns, if any, relating to their role and responsibilities.

In seeking to determine whether a Senior Manager is responsible for managing the activities concerned in the breach, the regulators will look to the Senior Manager’s Statement of Responsibilities, and in the case of enhanced firms, the Management Responsibility Map. The regulator will also consider how the firm and the responsibilities were allocated in practice, the Senior Manager’s actual role and the relationship between the Senior Manager’s responsibilities and the responsibilities of other Senior Managers.

What should Senior Managers be doing now?

As part of the preparation for the SMCR regime commencing on 9 December 2019, it is recommended that Senior Managers consider the following actions:

  1. Reviewing and agreeing their Statements of Responsibility including checking alignment between their Statement of Responsibility, job profile and actual responsibilities.
  2. Ensuring they are familiar with their obligations under both the Conduct Rules and the Senior Manager Conduct rules.
  3. Understanding how they will demonstrate they are taking reasonable steps including identifying how this will be evidenced and documented under their reasonable steps framework
  4. Reviewing and assessing the adequacy of the management information and reports they receive
  5. Ensuring that their local reporting lines and delegations are clearly allocated and documented
  6. For those in enhanced firms, confirming the Management Responsibilities map reflect the governance arrangements accurately and correctly incorporate their responsibilities.
  7. For those in enhanced firms, ensuring they are familiar with their obligations under the Senior Manager handover arrangements.

If you would like to discuss any of the above areas, please do not hesitate to get in touch.

© 2020 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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