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    It’s not too late to succeed with SMCR’

    Dan Ridler
    Dan Ridler

    • With almost 50,000 firms going live with Senior Managers & Certification Regime (SMCR), the BCS Consulting SMCR team has been extremely busy supporting a range of clients, particularly within the CCA lending and asset management sectors. We are uniquely positioned based on our extensive experience and the insights we have gained from running the regime in business as usual (BAU) for almost a year in one of the largest global banks.

    Given that the regime went live in 2016 for banks and 2018 for insurers, solo-regulated firms are very fortunate to be able to learn key lessons from them and leverage expert guidance on know how to best implement the regime and avoid common pitfalls. Whilst the regime is ultimately trying to build a stronger culture of individual accountability, the key implication for firms is the need to more tightly control organisational change.  In my opinion, there are two fundamental things that firms must focus on and learn from banks and insurers:

    • Firstly, it is critical that the Senior Manager population truly reflects decision making and ultimate accountability, even if it means a ‘Core’ firm opting up to the ‘Enhanced’ regime or pulling in individuals from an overseas parent. Too many firms try to limit the number of people or the impact on their overseas bosses, which results in unfair risk and personal liability for the Senior Managers within the entity who are not able to fully discharge their personal accountabilities.
    • Secondly, most banks failed to focus on the BAU operating model to support the regime and control organisational change. After reaching go-live they realised the organisation had already evolved and they spent vast amounts of time playing catch up and regaining control. If you mobilise your BAU operating model as a priority, you can manage inevitable changes up to and beyond go-live in a controlled manner.

    For firms who are only now thinking about their SMCR implementation, there are numerous options that can be considered to help accelerate delivery and ensure they get things right first time around. Firms who are tackling SMCR on their own will need to quickly get going as translating the rules into a practical and effective implementation approach and design is not easy. However, with the right support, there is plenty of time to achieve a high-quality end-result which not only achieves compliance quickly, but also has a positive impact on the organisation, as many banks now attest to.

    BCS Consulting’s approach is to quickly tailor our predefined BAU operational framework. This provides full traceability to the rules and offers an easily adopted best practice set of processes, policies, tools and templates that enable firms to maintain ongoing compliance. The full implementation programme can be reduced to only a matter of weeks! However, even with reduced delivery timelines, there are a number of challenges that firms must continue to work through and determine the most suitable approach. In particular:

    i. UK subsidiaries of overseas headquartered firms must be particularly careful given that accountability and decision making often sit overseas, whilst Core firms don’t have the luxury of bringing in SMF7 (Group Entity Senior Managers) and they also don’t submit Management Responsibilities Maps (MRMs) to the regulator, removing their ability to illustrate management and governance arrangements. Often subsidiaries will need to strengthen their governance arrangements to help increase their level of autonomy and ensure the entity management has the right to veto decisions from the parent where appropriate.

    ii. Collective decision making and accountability does not go away under SMCR. However, Senior Managers need to be clear on how authority is formally delegated to and from the Board of the entity and where they should be escalating key decisions or issues for collective consideration. Committees without formally delegated authority, which are generally operational committees within a Senior Managers part of the business, are just informing the individual decisions of the relevant Senior Manager.

    iii. Resource implications of ongoing ‘BAU’ requirements really depends on the size and complexity of firms, in addition to the number of organisational changes which are often underestimated by firms. The key to working this out is to agree who will own each operational activity (most of which will sit with the HR team) and apply basic volumetric analysis of comparable instances to determine whether the existing headcount can support them. It is highly recommended that central management and oversight is held in a single team to ensure all SMCR moving parts are effectively controlled on behalf of the accountable Senior Manager (this may require new roles).

    iv. Whether to invest in an SMCR IT system, which is closely to connected to the previous point i.e. it depends on the size, complexity and volume of change. I personally think the key factor that should drive the decision is the size of the Certification population and the volume of turnover. If it is high, then the ability to maintain an accurate audit trail, automate process steps and notifications and rollback functionality may be a benefit. However, firms must remember that SMCR is largely about forward-looking information (i.e. potential staff and governance changes if approvals are successful and which do not exist in systems and data today) and tracking manual process steps.

    Change and regulation will be never ending. However, once SMCR has gone live, I expect there will be an ongoing focus on improving and formalising governance arrangements as they remain immature and ineffective in many firms, particularly outside the banking sector. This is already being reinforced by the FCA with publications such as the proposed remedies from the Asset Management Market Study. Similarly, we are seeing increased regulatory focus on strengthening the three lines of defence and enhanced conduct risk management. All these topics tie in very closely to SMCR and individual accountability, so I don’t think it will be the last we hear of it.

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