Introduction to the SMCR Review

On March 30, 2023, the FCA and PRA released a joint discussion paper focusing on the operational aspects of the Senior Managers and Certification Regime (SMCR). Concurrently, HM Treasury published a Call for Evidence, seeking input on the legislative aspects of the regime. Below, we explore the key proposals and objectives of the Call for Evidence and Discussion Paper.

SMCR ReviewThe government announced a review of the SMCR in December 2022 as part of the Edinburgh Reforms, aimed at promoting growth and competitiveness in the financial services sector. On March 30, 2023, the FCA and PRA issued a joint discussion paper (DP1/23) to gather views on the operational aspects of the SMCR, while HM Treasury released a Call for Evidence on the legislative aspects. The goal of these reviews is to understand stakeholder perspectives on the current functioning of the SMCR and identify possible improvements, while maintaining the core objectives of promoting safety, soundness, reducing consumer harm, and strengthening individual accountability.

Key Aspects of the FCA/PRA Discussion Paper

The joint discussion paper from the FCA and PRA seeks feedback on the general effectiveness, scope, and proportionality of the regulatory regime. It also examines specific elements, such as the approval process, to help respondents identify potential enhancements. The paper's appendix compares how other jurisdictions have implemented individual accountability to improve decision-making and promote regulatory goals.

The FCA/PRA is particularly interested in views on the following points:

• Overall approach of the SMCR: Whether the SM&CR has made it easier to hold individuals accountable and improved safety, soundness, and conduct within firms.
• Fitness and propriety: Whether fitness and propriety requirements have supported firms in appointing qualified individuals to senior manager roles.
• Holding individuals accountable: Whether the SM&CR has facilitated firms holding staff accountable and taking appropriate disciplinary action.
• Collective decision-making: How the specific accountabilities of individual directors established by the Senior Managers Regime complement the collective responsibility of boards or decision-making committees and potential improvements.
• Enforcement: Whether the prospect of enforcement promotes individual accountability and if the enforcement approach could be enhanced to better support the aims of the SM&CR.
• Scope: Whether the scope of the SM&CR is appropriate and if any steps could enhance competition or international competitiveness. For example, examining the scope of the Certification Regime, which is perceived as too broad.
• Proportionality: The extent to which the SMCR is applied proportionately to firms and individuals. The PRA’s recent Strong and Simple Prudential Framework Discussion Paper respondents favored simplification of the SMCR regarding minimum requirements, thresholds, or approval processes for new individuals.

The FCA and PRA will also work to improve delays in obtaining regulatory approval for Senior Manager appointments, building on recent efforts to reduce open applications and those outstanding for more than three months. Respondents have until June 1, 2023, to respond to specific questions in the Discussion Paper using an online survey.

HM Treasury Call for Evidence: Exploring Legislative Dimensions

HM Treasury's Call for Evidence, in conjunction with the Discussion Paper, aims to build a joint evidence base on the overall functioning of the regime to consider future reforms. The government seeks to explore opportunities to better deliver on the regime's core objectives while minimizing the impact on firms and regulators. This aligns with the broader goal of enhancing the UK's attractiveness as a location for financial services businesses and supporting economic growth.

The Call for Evidence lists issues stakeholders have raised informally with the government, including the compliance requirements for authorizing new Senior Managers, the breadth of coverage of the Certification Regime, the levels of scrutiny applied to regulated firms, the interaction of the SM&CR with other regulatory regimes, aspects of the regime that may appear removed from its core purpose of managing risk, and the frequency with which certification must be reviewed. Stakeholders have until June 1, 2023, to submit their comments on the Call for Evidence.

Background: Understanding the SMCR's Purpose and Goals

The SMCR aims to promote safety and soundness, reduce harm to consumers, and strengthen market functioning by holding financial services professionals individually accountable to their employers and regulators. It requires senior decision-makers in firms to be fit and proper for their roles, taking reasonable steps in executing their duties. The regime also ensures that all financial services staff meet expected conduct standards and have a clear understanding of their roles and responsibilities.

The Future of SMCR: Anticipating the Review's Impact

This comprehensive review of the SMCR is the first of its kind since its implementation, and the outcome could significantly impact the future functioning of the regime. We will closely monitor developments and are prepared to provide support and guidance on the SMCR, both in relation to the review and more broadly.

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