The Senior Managers Regime – The Future

Will your business be affected?

The Senior Managers Regime is due to be extended in 2018. After its initial introduction to the senior staff at banks and insurance companies in 2016, the Regime was extended this March and the new conduct rules applied to almost all staff. Next year, asset managers, financial advisers, stock brokers and others will also be affected. As change rolls on, what can we learn from the past year that will help reduce risk and raise management effectiveness?

A crucial lesson for those due to be affected in 2018 is to act fast. There was a degree of last-minute panic as this year’s deadline approached. In an interview given to Financial News on the readiness of the City’s banks, Allen & Overy’s Sarah Henchoz remarked that it was “incredible how many of them are still asking a lot of quite basic questions about what’s required of them”. A sizeable amount of information is required and compiling the individual references is a substantial HR undertaking.

Do you have a system in place?

It is linking the certification process to existing Human Resources systems which banks and insurers have found most challenging. Certification verification and performance management are two different fields, yet this method is preferable – especially as individuals records need to be maintained for six years, despite staff turnover and employees leaving the firm.

The creation of individual records has therefore not been without issue. In a statement this March, the FCA reported that:

“In some cases, we have seen evidence of overlapping or unclear allocation of responsibilities… In other cases, firms appear to be sharing responsibility amongst some staff at different levels of management, obscuring who is genuinely responsible”.

It is not clear whether this obscuring has occurred intentionally or due to the complexity of the task, but the FCA are clear that a culture of individual accountability needs to be established and the lesson for those who will be required to join this culture next year is to be as precise as possible.

Are your people ready?

A crucial feature of the Senior Managers Regime – and the area where People Risk Solutions has provided the most assistance in the past year – has been the adoption of the Conduct Rules. Over the past year, Senior Managers and certified persons have not only had to abide by these rules but ensure that their team was ready to do so as well by the 7th March 2017.

The conduct rules are designed to set a minimum standard of behaviour and ensure that staff always act with integrity. In order to meet these demands, staff have needed to familiarise themselves with the Compliance rules specific to their business and to focus on day to day issues like data sharing and personal share dealing.

If your business or organisation will fall under the Senior Managers Regime in 2018 you need to be putting systems in place, preparing your people and reducing the risk of breaching rules and triggering regulatory sanctions. Using the experience we have gained helping banking and financial firms through this change, PRS offers bespoke workshops and practical HR support that will allow your staff to fully understand the Conduct Rules and experience real life case study scenarios of the Regime in action. To avoid a panic when the deadline nears and to ensure you and your people are fully prepared, contact PRS today.

Senior Managers Regime

The Senior Managers Regime in 2018

A New World

From 2018, the Conduct Rules laid out in the Senior Managers Regime will apply to all financial institutions – we are expecting further details in June 2017. This is an expansion of the current regime for the banks and insurance companies to whom it has previously, and currently, applies. The introduction of a culture of individual responsibility is a significant change and it presents a major challenge to the businesses it will affect.

When the responsibility is placed on people, businesses need to ensure that their people are informed and involved, or they run the risk of breaching rules and triggering disciplinary and regulatory sanctions. For Senior Managers, it is vital that the people they manage get to grips with the new rules by providing practical training and introducing systems and processes to help manage the process.

Providing a Guide

As the SMR was introduced throughout the banking and insurance industries, People Risk Solutions has run workshops on Culture, Values and Regulation designed to integrate the new regime into affected businesses and organisations. These interactive and case study driven sessions are now adapted and open to any business whose people will require familiarity with the conduct rules.

At the heart of the new culture are the core 5 rules themselves, which are as follows:

• Rule 1: You must act with integrity
• Rule 2: You must act with due skill, care and diligence
• Rule 3: You must be open and cooperative with the FCA, the PRA and other regulators
• Rule 4: You must pay due regard to the interests of customers and treat them fairly
• Rule 5: You must observe proper standards of market conduct

In order to fully understand the rules and the manner in which they are to be applied to everyday work, our workshops provide an overview, not just explaining what the accountability regime is, but why this is happening and what the intended purpose is. We then use a series of scenarios to bring the rules to life for everyday work.
From a broad examination of the regime, participants are then able to identify the key features of the required culture and, crucially, how these differ from the past.

Bespoke Direction

Rules are a framework designed to be rigid and intransigent. However, the businesses and organisations they are to be adopted by will be varied, with subtle and important operational differences. This is why each workshop addresses how the new regime will work at your organisation – working with Senior Managers to create a compliant system which will uphold the values and purpose of the rules within a familiar framework.

To test these systems and ensure that participants are able to apply the rules in the real situations they will be facing, a series of scenarios has been developed – each drawn from real-life case studies. The ultimate aim is for delegates to use the understanding and experience of the session to create personalised action plans they can immediately implement when they return to their work.
The FCA has stated that their extended regime will be ‘clear, simple and proportionate’. The complexity comes with the integration of these clear rules into complex organisations. Using our experience gained providing assistance to the banking and insurance industries during 2016 and 2017, People Risk Solutions will be on hand to provide the training and HR support your business requires.

To find out more, contact us

Senior Managers Regime

The Senior Managers Regime – One Year On

The introduction of new rules and responsibilities for banks and insurance companies is a process. Today, we find ourselves in the middle of this process. Now is therefore an apt time to look at the past, the present and the future – how has it worked so far for those affected, what does it mean for your people today and what changes are still to come that you need to prepare them for?

A New Culture

The measures introduced by the FCA in response to the 2013 Parliamentary Commission on Banking Standards began with the Senior Managers Regime which was implemented in March 2016, have continued with the Certification Regime this March and will be extended next year to include financial institutions beyond banks and insurance companies.

As this new era of personal culpability develops, People Risk Solutions has been providing help and support to organisations and their people as they get to grips with the regime. As the SMR is extended, we have been helping our clients to establish systems and run practical training workshops which will ensure their people can adapt as the changes filter through.

Conduct Rules

Certified Persons now need to be certified as fit, proper and competent by the firm, rather than by the FCA or the PRA, as in the past. It is the responsibility of the company to come up with a process to certify all those who were previously Approved Persons, and are now Certified Persons. Part of the regime means that senior managers and certified persons have to adhere to the five conduct rules as follows:

• Rule 1: You must act with integrity
• Rule 2: You must act with due skill, care and diligence
• Rule 3: You must be open and cooperative with the FCA, the PRA and other regulators
• Rule 4: You must pay due regard to the interests of customers and treat them fairly
• Rule 5: You must observe proper standards of market conduct

These rules should be familiar, but now a much stronger emphasis is placed on adherence to them. Additionally, Senior Managers have four extra rules applicable to them as well:

• SM1: You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
• SM2: 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
• SM3: You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee this effectively
• SM4: You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice

With the broadening of the regime, we have been able to expand our workshops introducing these new rules and associated features beyond just Certified Persons to all staff within a firm. This has helped clients reduce the risk of junior staff getting caught out, breaching these rules and incurring disciplinary and regulatory sanctions.

Reception

Reception to the SMR has been broadly positive, which is important given that this process is ongoing and will continue to expand next year. In a Duff & Phelps survey 55% of those polled believed that the new measures had produced a positive effect. Only 15% believed there had been a negative impact.

The 30% of undecided persons have good reason to be withholding judgement. One year on, the FCA are yet announce their first investigation under the SMR and the potential issues are still only hypothetical.

Though the changes should make it easier to identify an individual to be held responsible in the event of an investigation, will a Senior Manager – with his or her reputation and livelihood at stake – fight and resist an investigation with more vigour than a firm, which might be more inclined to settle as quickly as possible in order to return to business?

There are still unknowns and much of the response to the SMR is largely hypothetical. However, with no immediate backlash against the changes or signs of a course change, it is crucial that banks and insurance companies continue to ensure their staff adhere to the rules. With the inclusion of all financial institutions into the regime next year our workshops will continue to run, helping businesses to inform their people and reduce risk.

To find out more about how the SMR could affect you or to arrange training for your staff contact PRS here