For many firms SM&CR created a step change in personal accountability, causing a potential headache - especially when dealing with those who've never had accountability before.
Are We All Senior Managers Now?
Imagine if you work for an insurance company, a broker or an asset manager, as an administrator. One day, you’re asked to attend a training session in which you’re told that you could be liable to face action from the FCA for any misdeeds. How would you react?
A key requirement of SM&CR is that the FCA’s Individual Conduct Rules will apply to all staff, save for those in ancillary functions. The rules are:
- You must act with integrity;
- You must act with due care, skill and diligence;
- You must be open and cooperative with the FCA, the PRA and other regulators;
- You must pay due regard to the interests of customers and treat them fairly; and
- You must observe proper standards of market conduct.
Not only that, but you'll have a regulatory requirement to train your staff so they understand their responsibilities - and the potential consequences if disciplinary action is taken against them as a result of breaches of any of these rules. The FCA must be notified of any such action - and potentially, the regulator could investigate further.
This is a difficult message to get across, but is part of the FCA's desire to see strong cultures and good behaviours embedded within all firms, achieved through greater levels of accountability across the board. That desire is primarily driven by the lack of individual accountability in evidence during the banking crisis. The FCA lays down the rules, but it's you who has to deliver the training - which is where the problems could start.
The bare minimum
The initial temptation is to do what the rules require and simply tell your staff what the requirements are. After all, factual training is easy to deliver - just put together some brief PowerPoint slides, copy and paste in the rules and the job is done. Except it isn't, because this approach brings a whole host of risks, the biggest one being demotivated and disillusioned staff. Just take a look at some of the potential outcomes:
- Your staff are disgruntled that they have more accountability. After all, why should someone who’s paid a relatively modest salary be accountable to the regulator the same way as those highly paid bankers? “Are we all senior managers now?” could be the rallying cry. This one is understandable, and highly likely to arise.
- They don’t have to worry because you, their employer, will protect them. People who aren’t in senior positions may believe that any misdemeanours will be dealt with internally and the employer will bear the brunt of any regulatory action. But that’s not how the regime works, and insurance against the cost of any regulatory fines isn’t permitted under the rules. A difficult message, this one.
- They worry that they’ll have to work much harder to keep their jobs and not be fined. This is a big risk, as people may believe that how they perform now won’t be good enough and they’ll have to work harder – again, understandable.
- They’ll have to look after number one to make sure they’re not in the firing line. A greater level of personal risk is hardly conducive to building great teams – in fact, team spirit could be completely eliminated at worst.
Given the training is aimed at people, many of whom will have had little exposure to regulation and compliance before, this will be a big, difficult and scary message if it's not handled properly. In the rush to ensure regulatory requirements are met, you could end up opening up a whole hornet's nest of problems by damaging staff motivation. So, what's the solution?
Prevention rather than cure
The answer is to make sure that you get your training right, anticipating some of the problems that could come your way, depending on what your staff may already know. Here's what you need to make sure:
- Training is accessible – at the very least, it must be in language that the staff can understand, and it must show them how the Conduct Rules relate to their roles in your business.
- Specific concerns are addressed – for example, how can administrators make sure they’re doing enough to treat customers fairly in the new regime? How can back office staff at asset managers ensure standards of market conduct are met? Information on how the requirements can be met must be proportionate and allay any irrational fears.
- Understanding is confirmed – make sure staff are tested to demonstrate their understanding of what the Conduct Rules say, and what’s expected of them. Don’t let them leave the training without proving that they know what’s coming.
Specialist e-learning can be an effective way of getting across the technical detail and key messages to the satisfaction of staff and the regulator. A specific training package on this subject may be just the ticket for many, but for those who want to go deep into key messages, or give special attention to certain roles, a tailored arrangement may be more appropriate.
Both of these can be combined with training in related areas, such as whistleblowing, for example, and also have the benefit of being able to be repeated – whether annually or more frequently; essential if you want to make sure your staff don’t forget their obligations.
Want to learn more about SM&CR?
You can find out more by visiting our SM&CR hub and stay up-to-date with our regular SM&CR blogs. We offer comprehensive SM&CR Training including a fully integrated SMCR 360 Compliance Toolkit to streamline, unify and automate your processes
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