Financial services regulatory compliance is complex, especially for those falling under the SMCR. We have created a series of scenarios to test that learners know how to apply what they have learned when faced with dilemmas that could happen in the workplace.
- SMCR scenario: New Prescribed Responsibility
- SMCR scenario: Disclosures within recruitment
- SMCR scenario: Reporting lines
- SMCR scenario: Learning & development
- SMCR scenario 5: Assessing the most senior manager
- SMCR scenario 6: Handover between SMFs
- SMCR scenario 7: Conduct rules breach reporting
- SMCR scenario 8: Material risk taker
- SMCR scenario 9: Fit & Proper
- SMCR scenario 10: Reasonable steps - oversight
- SMCR scenario 11: Handoffs between SMFs
- SMCR scenario 12: Regulatory references
We are publishing a series of 12 scenarios, so bookmark this page or sign up for our newsletter to stay up-to-date with our newly added tests.
1. SMCR scenario: New Prescribed Responsibility
The FCA started a consultation exercise in 2021 setting out proposals to enhance diversity and inclusion in financial services. The FCA also linked this to its work on the treatment of consumers, including vulnerability and the new Consumer Duty.
The Regulators may make Senior Managers (SM) directly accountable for diversity by using Prescribed Responsibilities (PR) that deal with the firm's culture.
If the FCA adds a new PR for culture, which of the following would be best practices for regulated firms?
- Explicitly assign the PR to an SM, and record and report to the FCA.
- Like other PRs, it may be shared between more than one senior manager.
- Under the 12-week rule, temporarily allocate the PR to a CP.
- If reasonable steps were taken the SM owning the PR has a breach defence.
2. SMCR scenario: Disclosures within recruitment
You have hired a new compliance officer. Their role will be to champion anti-fraud measures across the business. On this new hire's first day, you receive a call from your HR team saying that they overlooked a disclosure on the individual's application form.
The candidate stated they have a conviction for using their ex-police warrant card to get free train travel, yet they didn't raise this during their interview with you.
Which of the following actions follow best practices?
- Take no action, as the person has started the role; this is an HR oversight
- Start the employment with a verbal warning related to the conviction
- Request HR reviews onboarding procedures to prevent this from happening
- Terminate the offer of employment and seek legal advice
3. SMCR scenario: Reporting lines
David, the line manager of a team of five customer-facing sales staff, has announced his resignation to join another firm. Olivia, a Senior Manager, is reviewing the impact of this departure on reporting lines for SMCR compliance.
After consultation with her colleagues, she decides not to replace David in his role. The best person to manage the performance of David's team would be a sales manager based in Europe, who reports to an SMF based in the UK.
Another option would be to assign the team to a UK-based sales team manager, although his team is not performing well.
Which courses of action can Olivia pursue with respect to David's team?
- Assign the team to the Europe-based line manager with no further changes, as an overseas manager cannot be in the scope of SMCR
- Make the team report directly to the SMF, or UK-based sales team manager, even if the Europe-based manager has input on team performance and rewards
- Assign the team to the Europe-based line manager, but only if that line manager accepts coming under the scope of SMCR
- Assign the team to the Europe-based line manager, but only if that line manager relocates to the UK
4. SMCR scenario: Learning & development
You are reviewing the information provided by line managers which supports the issuance of certificates to Certification Function holders. You notice that there is no Learning and Development (L&D) plan in place for the most experienced salesperson.
When you ask the line manager why there is nothing in place they say that there is nothing left for the individual can learn about their role.
Which of the responses below follows best practice?
- This is fine. If the salesperson is very experienced and the line manager agrees, no further learning is not needed.
- All individuals must undertake mandatory compliance and conduct rules training as a minimum.
- Markets, products and services are constantly changing, and the individual must train to keep up to date with those developments.
- If the salesperson doesn't have any specific needs, they should be assigned the same L&D plan as their counterparts.
5. SMCR scenario: Assessing most senior manager
The annual assessment of competence, fitness and propriety is fast approaching. You have established templates for assessing all Senior Managers and Certification Staff. Meetings have been put in diaries to carry out the assessments. The CEO calls you and asks who will be assessing the Chairperson.
Which of the following responses follows best practice?
- No one, the Chairperson is the most senior individual and there is no one who can do the assessment.
- Arrange for an assessment to be carried out by the CEO.
- Arrange for a non-executive director on the Board to do the assessment.
- Any SMF can be appointed with an independent charge to carry out the assessment.
6. SMCR scenario: Handover between SMFs
The Head of Risk, an SMF3 Executive Director, retires at the end of the week. An external candidate will be starting on Monday but the FCA application has not been submitted yet. The reason partly is that one regulatory reference has not come back yet and partly because the fit and proper assessment will not be completed until after the individual has completed their probation.
Which of the following options would be best practice?
- Use the 12-week rule by when the reference should be back and the individual should have been deemed fit and proper.
- The Head of Risk should provide a handover to both the CEO and the incoming Head of Risk.
- The Head of Risk need only provide a handover to the incoming Head of Risk.
- Adjust the CEO's Statement of Responsibilities to show they will be assuming SMF responsibility for Risk until the replacement has been approved by FCA.
7. SMCR scenario: Conduct rules breach reporting
Peter is subject to conduct rules but is a non-certified person. He was found to be claiming expenses for dinners and drinks with family and friends, claiming it to be entertainment for clients. Peter's family and friends were not clients of the firm.
During the disciplinary process, Peter revealed that he felt under pressure to show his family that he was doing well in his career. However, following the internal investigation and disciplinary process, he was dismissed.
Which of the following options would be best practices for the firm?
- Include the outcome in any regulatory references.
- Include in the annual FCA conduct rules breach report.
- Report the breach immediately to the FCA.
- Nothing. Only the breaches committed by Senior Managers and Certification Staff need to be reported to the FCA.
8. SMCR scenario: Material Risk Taker
A senior credit officer has recently had their sanctioning power increased. They are not particularly highly paid or part of the senior management team. They do not have any line management responsibility.
However, their new levels of authority are sufficiently high to consider whether they are a Material Risk Taker (MRT).
Which of the following options would follow best practices?
- Make the officer an MRT as their authority has been increased.
- Discuss with the officer's line manager and HR, against the agreed internal criteria for MRTs.
- Request some examples of the decisions they are now able to take to inform the decision.
- The officer cannot become an MRT as their pay is too low.
9. SMCR scenario: Fit & Proper
As part of a routine background screening, you randomly select certain Certified Persons and obtain updated reports from the Disclosure and Barring Service (DBS).
The report for one of the investment advisers that came back shows a series of county court judgements (CCJs) dating back to their early twenties. They have worked for your firm for the past 9 years and have a good conduct record.
Which of the following options follows best practice?
- Ask HR why this issue was never flagged up before.
- Revoke the adviser's certification immediately.
- Impose additional monitoring and supervision for the adviser.
- Speak to the adviser and their line manager to establish the facts and the way forward.
10. SMCR scenario: Reasonable steps - oversight
Elisa is an SMF16 and has hired a new Head of Monitoring. Their role will be to manage the compliance risk assessment and monitoring programme.
These are part of Elisa's SMF16 responsibilities. Elisa needs to show evidence that she has exercised reasonable steps concerning these two responsibilities.
Which of the below options would follow best practice?
- Keep a folder with copies of all the emails exchanged with the Head of Monitoring.
- Put a regular meeting in the diary with the Head of Monitoring with a standing agenda.
- Document the responsibilities that she is delegating to the individual.
- Require that all the Head of Monitoring's written work is signed off by her.
11. SMCR scenario: Handoffs between SMFs
The main trading system of your firm had a half an hour outage while the markets were open causing problems with the ability to book trades and monitor risk.
IT says the underlying cause is outdated software that was commissioned by Trading. They don’t have a schedule of updates for this software. The Head of Trading says that IT is responsible for keeping systems up to date and that IT was at fault for the outage.
Which of the below options would resolve this and follow best practices?
- IT should take responsibility for updating the software and the outage.
- The Head of Trading should take responsibility for updating the software and the outage.
- The Head of Trading and IT should identify which systems and platforms Trading relies upon, and the basis on which each should be updated.
- The Head of Trading and IT should document the handoff between their respective areas being clear about who is accountable in given situations, including updates.
12. SMCR scenario: Regulatory references
A customer relationship manager is relocating to the UK. Their role will be a Certification Function. They have worked for the firm for the last 4 years. No regulatory reference was required when they were hired as they were not carrying out a regulated role. Their previous employer is outside the UK and did provide the usual HR reference.
What do you do to follow best practices?
- Nothing, as the firm does have a reference from the previous employer.
- Make a note that since the previous employer is outside the UK, no regulatory reference is required.
- Request a regulatory reference from the previous employer, explaining the purpose and the information required.
- Ask the manager if they have a current contact at the previous employer and speak to them to explain the situation.
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