December 2019-A CEO takes quiet satisfaction that her Core firm has delivered its SM&CR project and met FCA’s deadline.
She had led the SM&CR project from the off, supported by HR and Compliance. It had been challenging. Compliance completed legislative and rules analysis and she had a consultancy firm validate it using proprietary software. She kept the project in house, supporting Compliance with contractors that had tackled SM&CR with banks. This helped to focus on the difficult issues early. She was surprised at the extent of the HR documentation rework.
Conduct Rules training for all staff and role specific training for the Senior Management Functions (SMFs) and Code Staff has just been completed. A good job, but she is concerned how they will live-up to the regime:
- She now has a “Duty of Responsibility” and the “Prescribed Responsibilities” largely fall on her shoulders.
- FCA Supervision will expect each SMF to address their Statement of Responsibility (‘SoR’) and so she has demanded key performance indicators and management reporting to be enhanced.
- Management committee terms and membership have been revamped to align SoRs and collective responsibility.
- Change management will need to be more disciplined so SoRs are updated and resubmitted to FCA.
- Hiring new SMFs is going to be more involved. FCA are expected to closely scrutinise candidates. She expects new hire SMFs to cost more, and the recruitment and FCA approval to take longer.
- She will appraise each SMF on whether they meet their SoR with input from Compliance and Risk alongside commercial objectives. Remuneration will be at stake!
- HR has set up annual fitness and properness assessment and certification for all SMF and certification functions. HR are looking for software to automate this task.
- HR and Compliance need strengthening, and she aims to hire talent from a larger firm with SM&CR experience.
- FCA will no longer approve new certified functions. This may make hiring more dynamic but gives new obligations and risks.
- Managers of certified functions are also certified so there is a clear chain of accountability from risk takers up to SMFs.
- She is supportive of the new regulatory referencing requirements but is concerned about how they will deal with any fit and proper issues that arise and the potential impact on reputation. They are no longer be able to use NDAs.
- She plans to test her Firm in periodic mock Supervision visits to ensure that they continue to meet FCA expectations.
SM&CR is a far-reaching regulatory change and it will have implications for all firms for many years to come. 9th December 2019 is the start date and we would anticipate CEOs will continually evaluate their organisation to meet evolving regulatory expectations.
With so much of this success resting on the strength of the team, it is really important to ensure that the skills and experience of those being brought into the team are of the highest quality. This is where the specialist expertise and network of Danos Associates can make a real difference.