SM&CR – Conduct Rules

The SM&CR is being extended to all FCA regulated firms on 9 December 2019 having been in place for Banks and Insurance Companies for some time. The FCA recently published a report on the findings of their review of SM&CR implementation in those organisations. You can read more here. A FCA podcast on SM&CR is available here. You can also read our other recent articles on SM&CR in the News section of our website.

The report gives a few useful insights to how the FCA intends to monitor SM&CR and, in particular, the Conduct Rules. These snippets should be helpful to firms that will be brought under the SM&CR in December.

Findings
The good news is that the FCA found that implementation of the SM&CR has been generally successful in most organisations.

“The industry has made a concerted effort to implement the regime. Most firms are taking actions to move away from basic rules-based compliance towards embedding the regime in the organisation.”

Reasonable steps
Many senior managers expressed concern around understanding the meaning of ‘reasonable steps’ in the context of their business. The concept of reasonable steps is part of the Duty of Responsibility introduced in the legislation that established the SM&CR.

There is guidance in the Decision Procedure and Penalties manual that sets out some of the factors that the FCA would expect senior managers to have regard to in considering whether they have taken reasonable steps to avoid a contravention from occurring or continuing.

ATEB has also produced a template to assist senior managers to assess their responsibilities in terms of ‘reasonable steps’.

Certification assessment
Firms have broadened their approach to assessment of staff beyond solely technical skills, and  managers are in a better position to assess the behaviours of their certified staff. However, most firms could not demonstrate the effectiveness of their assessment approach, use of subjective judgement or how they ensure consistency across the population.

Conduct Rules
While staff interviewed generally understood the Conduct Rules, the FCA found that firms have not always sufficiently tailored their conduct rules training to individuals’ actual job roles.

Firms should use their own values to bring the conduct rules to life. However, many firms have not yet clearly mapped the conduct rules to their values.

Many firms were unable to explain what a conduct breach looked like in the context of their business.

Conclusion so far
The FCA found that some firms have been less successful in embedding the regime below the senior manager level. There is some room for further progress at the certification level and potentially more significant weaknesses in the implementation of the conduct rules for other staff.

 

 

 

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

SM&CR is coming relentlessly down the track for FCA solo regulated firms. Thus far, firms that have been implementing the regimes for a while seem to have focused on the Senior Manager bit with the Certification and Conduct Rules aspects looking like poor relations in the attention stakes. It is clearly important to get all three layers of the regime working well. If anything, although the Senior Managers and the Certification aspects are the obviously tangible elements, and the Conduct Rules look like an also ran afterthought, it is evident that much of the monitoring of the regime within firms will focus around the Conduct Rules.

The FCA stated in the report:

“We will increase our supervisory focus on the conduct rules. We expect all SM&CR firms to ensure that they are embedding the conduct rules in their businesses to meet their obligations under the regime. The conduct rules are a critical foundation for firms’ culture and the conduct of individuals. It is essential that staff understand the rules and how they apply to them”

Given the overall intention of the regime is to ensure individual accountability, this should really come as no surprise.

Action Required By You

As a key part of preparing for and implementing SM&CR, firms should:

  • notify all relevant persons of the conduct rules that apply in relation to them;
  • take all reasonable steps to secure that each individual understands how those rules apply in relation to his/her role;
  • this must include the provision of suitable training;
  • contact your usual ATEB Consultant or contact ATEB directly if you are interested in our suite of SM&CR tools, templates and guides, including a Conduct Rules training presentation.
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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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