The Senior Managers and Compliance Regime has three main elements that lie at the heart of the regime and its regulations. Having come about as a result of the 2008 Financial Crisis, and perceived failings at financial institutions SMCR is all about personal accountability and responsibility. Consequently, the have introduced five Conduct Rules required for SMCR compliance.
The Financial Conduct Authority (FCA), the UK’s conduct regulator, has started to implement a number of steps to prevent such a financial crash from happening again. At the heart of the SMCR, is the encouragement of responsibility and personal accountability to improve conduct throughout the financial sector. The three key elements of SMCR are:
The Senior Managers Regime (SMR)
The Certification Regime
SMCR Conduct Rules
Each of the three key aspects of this regime serve specific purposes and are designed to solve specific problems. With regards to the Conduct Rules, one of the key objectives here is to apply standards across UK financial markets to improve the culture. These conduct rules also help set out more clearly than ever, who does what and who, within firm is responsible for what.
Who Do SMCR Conduct Rules Apply To?
Part of what makes SMCR different to previous regulatory frameworks is that it applies to everyone within a financial firm (except ancillary staff). SMCR Conduct Rules apply to all staff and employees within FCA-regulated firms in the UK who are providing financial services and financial advice. Moreover, these Conduct Rules apply to anyone within a firm whose role and therefore actions, could cause significant harm to either clients or their firm.
Part of what makes these Conduct rules yet more different is that they also apply to temporary staff, interns and anyone else working in financial services for a solo-regulated firm. The SMCR Conduct Rules also apply in full to not just all UK staff within a firm, but any employees who may be working at oversees branch offices.
These rules apply to more staff and employees than ever before, in a sweeping move by the FCA to improve the ever-changing culture within UK finance.
Who Do SMCR Conduct Rules Not Apply To?
Although applicable to all staff in financial services (including firms that are not financial institutions but perform financial activity of some kind, such as offering consumer credit) there are some staff that are exempt from the SMCR Conduct Rules. These ancillary staff are also exempt from being compliant with the SMCR Regime altogether. However, for companies that wish to voluntarily train ancillary staff in SMCR, there is room to do so and this is certainly not discouraged. Ancillary staff typically include:
Kitchen and catering staff
Post room staff
What Are the Five Conduct Rules of SMCR?
The SMCR Conduct Rules are split into five rules, comprising one of the key tenets of the SMCR Regime. The five Conduct Rules Are:
Acting with honesty and integrity at all times
Acting at all times with due care, skill and diligence
Being open and honest with the FCA, the Prudential Regulation Authority (PRA) and all UK regulators at all times
Always paying due regard to the interests of customers and always treat them honestly and fairly
Observing proper standards of market conduct at all times
Each of these Conduct Rules are designed to improve the previously inadequate culture within the financial sector. They are designed to improve the levels of accountability, openness and honesty in one of the UK’s largest and most successful industries.
Staff and employees that are Senior Managers are subject to four additional Conduct Rules:
SC1. You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
SC2. You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
SC3. You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
SC4. You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice
What are the Ramifications of Breaching a Conduct Rule?
A financial institution is obliged to inform the FCA if it takes disciplinary action against a staff member or employee due to a breach of the Conduct Rules. In addition, the FCA can sanction individuals for Conduct Rule breaches.
In certain circumstances, a financial institution is obliged to inform a prospective employer of the Conduct Rule breach under the ‘regulatory references’ framework. Consequently, the personal liability of many staff and employees has increased as a result of the introduction of the Conduct Rules.