The Financial Conduct Authority (FCA) released its stocktake report on the Senior Managers and Certification Regime (SMCR) in the banking sector on Monday. The report is very timely and provides some useful insight for all FCA-regulated firms, particularly those who are currently developing implementation plans for the extension of SMCR to their businesses from December 2019. We report here on some of the key highlights.
1. The FCA doesn't appear keen to provide any further information on the "reasonable steps defence" in relation to senior managers' duty of responsibility. It points to the guidance in the Decision Procedure and Penalties manual and confirms it is not possible to provide an exhaustive list of points that would cover every circumstance.
2. Despite the additional responsibilities for non-executive directors, there is no expectation from the FCA that they should behave more like executive directors. Although the FCA accepts that the responsibilities of NEDs under the SMCR will often be considerable.
3. Firms have some way to go to improve the content and timeliness of regulatory references.
The main point was with regards to the conduct rules. Despite general improvements in culture (whereby certain firms have created cultures of challenge, escalation and providing a safe environment to speak up) there were "potentially more significant weaknesses in the implementation of the conduct rules" for staff outside of the senior manager and certification staff population.
The FCA states that it will increase its supervisory focus on the conduct rules. The message from the FCA is that firms must embed the conduct rules across their entire business (not just senior managers) if they are to meet their obligations under the SMCR. This means that firms must ensure that (a) all staff know if the conduct rules apply to them and (b) all reasonable steps are taken to ensure those staff understand how the conduct rules apply to them in their role (a particular concern of the FCA in its report). The steps taken must include suitable training.