The SM&CR replaced the Approved Persons Regime for FCA solo-regulated firms. The regime was designed to strengthen senior management accountability, improve governance and support better standards of conduct across financial services.

The Commission’s work led to four key recommendations aimed at improving industry conduct:

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1. Strengthening individual accountability — to increase accountability at all levels.

2. Reforming corporate governance — to increase Board and senior management oversight.

3. Securing better outcomes for consumers — primarily through enhanced competition.

4. Enhancing financial stability — including review of the regulatory bodies’ objectives.

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The Senior Managers and Certification Regime came into force for banks, building societies, credit unions and PRA-designated investment firms in March 2016, before being extended to FCA solo-regulated firms from 9 December 2019.

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Objective of the SM&CR regime

The overarching aim of the SM&CR regime is to reduce harm to consumers and strengthen market integrity. It does this by creating a framework that enables firms and regulators to hold individuals to account.

In practical terms, the regime is intended to:

• encourage staff to take personal responsibility for their actions;

• improve conduct at all levels;

• make sure firms and staff clearly understand and can evidence who does what.

This is achieved by enhancing senior management arrangements, requiring firms to assess the fitness and propriety of certain individuals, and applying Conduct Rules to a broad population of financial services staff.

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How SM&CR applies to different firms

The FCA designed the regime to provide consistency while recognising the differences between firms’ size, complexity, activities and potential risk to consumers or market integrity. FCA solo-regulated firms are generally categorised under one of three regimes:

1. Limited Scope Regime: applies to firms that already had exemptions under the Approved Persons Regime. These firms are exempt from some SM&CR requirements.

2. Core Regime: applies to most FCA-regulated firms.

3. Enhanced Regime: applies to the largest and most complex firms in the UK financial sector.

Firms remain responsible for checking that their classification is correct and for maintaining appropriate evidence of their SM&CR arrangements.

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The Core Regime

Most FCA solo-regulated firms are subject to the Core Regime. The Core Regime consists of three main elements:

• the Senior Managers Regime;

• the Certification Regime;

• the Conduct Rules.

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Senior Managers Regime

The Senior Managers Regime applies to a firm’s most senior decision-makers, typically including Board members and other individuals who perform Senior Management Functions. These roles are subject to FCA approval and carry specific responsibilities.

Key elements include:

• Statements of Responsibilities: firms must document what each Senior Manager is responsible and accountable for. These documents should remain accurate, current and available where required.

• Prescribed Responsibilities: certain responsibilities must be allocated to appropriate Senior Managers. Allocation should be clear, proportionate and supported by evidence.

• Reasonable steps: Senior Managers should be able to demonstrate the steps they have taken to discharge their responsibilities effectively.

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Certification Regime

The Certification Regime applies to individuals who are not Senior Managers but whose roles could cause significant harm to the firm, customers or market integrity. Firms are responsible for assessing and certifying these individuals as fit and proper at least annually.

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Certified Functions may include significant management functions, client dealing functions, CASS oversight roles, proprietary traders, roles subject to qualification requirements, material risk takers and individuals who supervise or manage certified staff.

Firms should maintain appropriate records of fitness and propriety assessments, certification decisions, competence checks, training and any relevant conduct or disciplinary matters.

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Conduct Rules

The Conduct Rules apply to almost all financial services staff, excluding certain ancillary staff. They are split between Individual Conduct Rules and Senior Manager Conduct Rules.

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Individual Conduct Rules

• You must act with integrity.

• You must act with due skill, care and diligence.

• You must be open and co-operative with the FCA, the PRA and other regulators.

• You must pay due regard to the interests of customers and treat them fairly.

• You must observe proper standards of market conduct.

 

Senior Manager Conduct Rules

• You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.

• 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.

• 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.

• You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.

 

Training, evidence and reporting

Firms should maintain evidence that relevant staff receive Conduct Rules training that is practical, role-specific and refreshed where appropriate. Senior Managers should also be able to demonstrate appropriate oversight of SM&CR arrangements, including Certification, fitness and propriety assessments, role allocation and breach reporting.

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Disciplinary action linked to Conduct Rules breaches must be identified, assessed and reported where required. Firms should keep clear records showing how potential breaches were considered, escalated and resolved.

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Self help for firms

The FCA has issued a practical guide for firms (SM&CR Guide for solo-regulated firms) which is a summary of the final rules and guidance on SM&CR. It gives an overview of how the SM&CR works and how firms and individuals will move to the new regime.