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.
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.”
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’.
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.
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.