Senior Managers & Certification Regime (SMCR)

1.    What are the three key parts to SM&CR?

There are three key parts to the SM&CR: Senior Managers Regime, Certified Persons Regime and Conduct Rules.

1.1 Senior Managers Regime

Enforces a detailed and clearer allocation of responsibilities between senior managers at each firm, with particular emphasis placed on key documents - 'Statements of Responsibilities' and 'Responsibilities Maps'. These will help to record the allocation of responsibility to individual Senior Managers and to demonstrate to the regulators that there are no gaps or excessive overlaps.

Senior Managers have a statutory duty of responsibility "to take reasonable steps to prevent regulatory breaches in the areas of the firm for which they are responsible".

1.2 Certification Regime

Requires firms to check and confirm that employees performing roles relating to the firm's regulated activities are fit and proper, based on their qualifications, competence and personal characteristics. Upon confirming this, the firm needs to issue them with a certificate that must be renewed at least once a year.

1.3 Conduct Rules

A set of rules provided in the FCA's Code of Conduct Handbook (COCON) that cover all individuals: Senior Managers, Certified Persons and other employees.

5. What are Senior Management Functions?

The Senior Managers Regime (SMR) applies to those perform a Senior Management Function (SMF). The FCA has classified particular functions as SMFs, so that it knows who a firm's senior decision-makers are, and to make sure that firms clearly allocate specific responsibilities to those key individuals. In certain circumstances, firms can have more than one individual performing a single SMF. However, the FCA expects the SMFs to be shared only where it is appropriate and justified.

The list of SMFs that applies depends on the type of firm.

5.1 Governing Function SMFs

5.2 Required Function SMFs

The Overall Responsibility requirement means that an Enhanced firm will need to make sure that every activity, business area and management function has a Senior Manager with overall responsibility for it. This is to prevent an unclear allocation of responsibilities.

Overall Responsibility means that a Senior Manager:

• Has ultimate responsibility for managing or supervising a function
• Briefs and reports to the governing body about their area of responsibility
• Puts matters requiring decisions about their area of responsibility to the governing body

5.3 Systems and Control SMFs

7.    Duty of Responsibility

Senior Managers have a statutory duty of responsibility "to take reasonable steps to prevent regulatory breaches in the areas of the firm for which they are responsible". 

The FCA can take action against a Senior Manager (SM) where it can show that:

1. There was misconduct by the SM's firm,
2. At the time of the misconduct or during any part of it, the SM was responsible for the management of any of the firm's activities in relation to which the misconduct occurred, and the SM did not take such steps as a person in their position could reasonably have been expected to take to avoid the misconduct occurring or continuing

The burden of proof for all these elements lies on the FCA. The SM does not need to show that they took reasonable steps - rather it is for the FCA to prove that they did not. The defence against such action is if the senior manager can show that they took "the steps that are reasonable for a person in that position to take to prevent a regulatory breach from occurring".

9. Individual and Senior Manager Conduct Rules

SM&CR incorporates new high-level standards of behaviour that will apply to almost all employees who carry out financial services activities in a firm. Some Conduct Rules apply to all employees, while others apply only to Senior Managers. The Conduct Rules are intended to drive up standards of individual behaviour in financial services. By applying them to a broad range of staff, the FCA aims to improve individual accountability and awareness of conduct issues across firms.

Individual Conduct Rules (ICRs): apply to all employees, with the exception of ancillary staff, such as facility managers, personal assistants, receptionists, medical staff, IT and HR, who perform a purely non-financial services role. These ICRs also apply to Non-Executive Directors.

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

Senior Manager Conduct Rules (SMCRs): apply to only to Senior Managers, including NEDs (SC 4 even applies to out of scope NEDs)

• SC 1: You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
• SC 2: You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
• SC 3: You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
• SC 4: You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice