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Markets and Securities Services |
United Kingdom
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standards are being maintained. Firms need to
think about how they make sure all staff, not
just senior managers and certification staff, are
behaving as they should.
Learning from the implementation of the
SM&CR in banks and insurers
A considerable amount of detailed work is
required to implement the SM&CR, so firms
captured by the regime in 2018 should be
thinking now about how to prepare. Asset and
wealth managers can benefit from the banking
and insurance sectors’ experience to address
the challenges of the SM&CR.
There are a number of areas that banks and
insurers have found difficult when considering
the SM&CR. The first is defining the boundary of
responsibilities between senior managers. While
some responsibilities will be straightforward
to allocate, others may need to be carefully
segregated between different senior managers
and in some occasional cases shared. Individuals
overseas also need to be considered, and those
who have influence over the UK firm need to be
included in the SM&CR. Gaining clarity on where
responsibilities lie in practice can be difficult.
Scenarios can help test where responsibilities
fall as the management team works through its
response to a situation.
As well as the initial implementation, the SM&CR
needs to be built into firms’ ongoing practices.
This includes ensuring that existing and new
staff understand the implications of the SM&CR.
Another challenge is keeping the allocation
of responsibilities up to date as this will need
amending when restructures and role changes are
executed. To manage the ongoing requirements of
the SM&CR, some firms have established specific
teams to run and maintain arrangements.
There is also the question of what evidence is
sufficient to demonstrate that senior managers
have discharged their responsibilities. This will
be different for each senior manager. While
formal records such as committee minutes and
management information will help, thought also
needs to be given to whether any additional records
are required for key decisions or delegation that
occurs outside the formal arrangements. Firms
will need to take this into account and provide
support to their senior managers.
Finally, while working through the detail of
how to implement the SM&CR, it is important
that firms do not lose sight of the spirit of the
regime. Bearing this in mind should help deliver
the outcomes the regulator is looking for.
Extending the SM&CR to other authorised firms
Effective governance, operational and control
frameworks help senior managers discharge
their responsibilities and provide comfort that
the business is operating appropriately. When
delegating tasks, senior managers must be able
to rely on their staff. Culture drives the way
decisions are made and can help make sure
staff act as the senior manager would expect.
Now is a good time for firms to review
governance and culture, as both can take time to
change. Ensuring changes are embedded ahead
of the SM&CR will put senior managers and their
firms in the best position to feel confident in their
responsibilities and delegation.
When supervising firms, the FCA is interested
in outcomes. For asset managers, this includes
your interaction with markets and the service
you provide to investors in your funds. There
has been a strong push from the FCA for
asset managers to think about the underlying
investors in funds, rather than just the
distributors that appear on the register.
Firms need to consider how they act on behalf
of those underlying customers. Are you giving
them what they would expect from your
communications? Are you getting the best deal for
those customers, limiting costs to maximise the
performance you generate? For senior managers,
they need to consider their responsibilities and
the outcomes being delivered.
One of the FCA’s current business plan
priorities is firms’ culture and governance. Both
governance and culture can be powerful drivers
in delivering the right outcomes for investors,
and have been areas of regulatory interest for
some time. Scrutiny of these topics is likely to
increase under the SM&CR.
It is difficult to take a dispassionate look at
your own governance and culture. Firms
do not set out to build an environment that
generates the wrong results, but drivers can
build up over time, generating behaviours that
become self-reinforcing. For example, seeing
praise and promotion given to individuals who
take an aggressive line to the detriment of
their customers can drive other staff to take a
similar approach. This will not produce the best
outcomes for investors in funds.