The Senior Managers & Certification Regime (SM&CR) is a regulatory framework that applies to all firms authorised by the Financial Conduct Authority (FCA). It requires firms to clearly allocate responsibility to senior individuals and demonstrate that those individuals are fit and proper for their roles. Firms are placed into one of three categories — Enhanced, Core, or Limited Scope — depending on their size and complexity, with Enhanced firms subject to the most extensive requirements and Limited Scope firms to the least.
Key Elements of the SM&CR
The SM&CR is a set of rules that will govern the management and governance of firms in the financial services sector. There are three key elements to it:
- Senior Managers Regime: This aims to make sure that firms have the right senior managers in place and that responsibilities are clearly allocated to them, enabling weaknesses to be identified sooner and strengthening market integrity. Senior Managers must be individually approved by the FCA before taking up their role.
- Certification Regime: This covers individuals who are not Senior Managers but whose roles could cause significant harm to customers or the firm. It is the firm's responsibility — not the FCA's — to assess and certify these individuals as fit and proper, which must be done before they take on the role and at least once every year thereafter.
- Conduct Rules: These rules apply to the majority of staff at a firm and set out the standards of behaviour that those people must follow. They were created to enforce personal accountability for one's actions and ensure everyone acts to improve conduct at all times, ultimately aiming to reduce harm to consumers.
Applications and Benefits of SM&CR
Senior managers holding FCA-specified roles must be individually approved by the FCA before starting. This is mandatory, and the regulator has said it will take enforcement action against firms that do not comply with SM&CR. Where a breach occurs, a Senior Manager can be held personally accountable if they failed to take reasonable steps to prevent it within their area of responsibility.
The SM&CR was introduced to ensure that senior individuals within financial services firms hold the right skills to manage their business effectively, and that accountability is clearly allocated at every level. The three-tier categorisation — Enhanced, Core, and Limited Scope — determines how many Senior Management Functions apply to a firm and the extent of its obligations. Firms are responsible for determining which category they fall into, based on FCA rules.
The FCA Approach
When the SM&CR was first introduced in March 2016, it initially applied to banks, building societies, credit unions, and PRA-designated investment firms. It was developed in response to the 2008 financial crisis and major conduct failings such as the manipulation of LIBOR. Insurers were brought into the regime in December 2018, and in December 2019 it was extended to all FCA solo-regulated firms — those regulated solely by the FCA, as distinct from firms dual-regulated by both the FCA and the Prudential Regulation Authority (PRA).
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