Senior management regime: Biba tells brokers ‘not to panic’

In October 2015, HM Treasury unveiled its plans to extend the Senior Managers and Certification Regime (SM&CR) so that it encompassess all sectors within the financial services industry. It is only until recently – July 2017 – that the Financial Conduct Authority followed with the publication of its proposals, which will ultimately replace the Approved Persons Regime.

The SM&CR currently applies to banks and PRA-designated investment firms, but will also roll out to all authorised firms, including insurers, investment firms, asset managers, consumer credit firms, and mortgage and insurance brokers.

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Why the change?

According to the FCA, the new regime will limit harm to consumers and strengthen the market, as individuals will be more accountable for their competence and conduct. The primary goals of the SM&CR are to:

  • Encourage a culture of employees at every level taking personal responsibility for their actions.
  • Ensure firms and staff clearly understand and are able to demonstrate where responsibility lies.

What will the regime cover?

The FCA has proposed that the SM&CR cover three parts:

  1. Five Conduct Rules that will apply to all employees at FCA-authorised businesses. These basic rules will require each individual to: act with integrity; act with due care, skill and diligence; be open and cooperative with the FCA, Prudential Regulation Authority (PRA) and other regulators; pay due regard to customer interests and treat them fairly; and observe proper standards of market conduct.
  2. The responsibilities of senior managers will be clearly defined, so that if something deemed their responsibility goes wrong, they can be held personally accountable. These managers will be approved by the FCA and will be listed on the FCA Register.
  3. Firms will certify individuals for their skill, fitness and propriety a minimum of once a year, if they are not covered by the regime but their jobs directly affect customers or businesses.

FCA Executive director of supervision - retail and authorisations, Jonathan Davidson, acknowledged that culture and governance in the financial services sector is a top priority for his company, and that the extension of the regime is crucial to driving forward culture change.

“This is about individuals, not just institutions,” he said. “The new Conduct Rules will ensure that individuals in financial services are held to high standards, and that consumers know what is required of the individuals they deal with. The regime will ensure that [senior managers] are accountable for both their own actions, and for the actions of staff in the business areas that they lead.”.

Why broker’s shouldn’t panic

Any change within the financial sector is always met with some apprehension, particularly when that change may see stricter regulations – and potentially penalties – enforced on firms and individuals for non-compliance.

Yet, the advice for brokers from the British Insurance Brokers’ Association (Biba) is simple: don’t panic.

Speaking to Insurance Age, David Sparkes, head of compliance and trainings, stressed that brokers who are compliant with current regulations shouldn’t have to make too many adjustments to their current practices.

Sparkes also noted how the new regulations are relatively straightforward and smaller firms would not need to hire a consultant in order to understand and implement them.

As the current proposals from the FCA set out the ‘what and why,’ the industry must wait until the follow-up consultation planned for the end of autumn, which will determine the ‘how.’ Only then will brokers be able to find out exactly what they have to do to ensure compliance.

Sparkes encouraged brokers to ensure they are aware of the need for every single employee within the firm to comply with the new rules, which are likely to come into effect towards the latter half of 2018. He concluded: “[It] shouldn’t be a big transition or a big culture shock for firms. It effectively reinforces a lot of what is there now.”

A common-sense approach

The Chartered Insurance Institute (CII) approves of the FCA’s “common-sense approach” to enforcing the new regime.

Matthew Connell, director of policy and public affairs at the CII, noted: “The FCA has introduced a segmented approach to the regime, which has light-touch requirements for ‘limit scope’ firms, such as sole traders and firms which sell general insurance, but not as their main business.

“Most other financial advice firms and general insurance brokers will be ‘core firms,’ and will have similar responsibilities to the ones they already have under the FCA’s current approved persons regime.”

Connell hailed the FCA’s proposals a “positive start to implementing the regime,” concluding: “The FCA has made its approach as user-friendly as possible, and we look forward to working with the regulator to produce a system that focuses on reinforcing a strong, ethical culture within firms, rather that creating unnecessary bureaucracy.”

If you feel like you would benefit from expert help as you navigate these upcoming changes, why not partner with Stride? Sign up with us and you’ll have a dedicated account manager who will offer you best practice advice and full support. Get in touch today to find out more.


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