The Senior Management Regime (SMR) and Certification Regime (CR) is to apply to all FSMA-authorised firms from 2018. HM Treasury forecasts that the proposed extension of the SMR will bring 42,000 consumer credit firms, 17,200 investment firms and 580 insurers within its remit and significant challenges.

What is the SMR and CR?

The SMR and CR was introduced to enhance transparency of responsibilities and senior management accountability in the banking sector. From 7 March 2016 banks and major investment firms had to comply with the SMR and CR instead of the Approved Persons Regime (APR), which remained in force for all other regulated firms.

The SMR prescribes strict requirements for relevant firms including but not limited to the need to:

  • Provide a statement of responsibility for each Senior Management Function (SMF)
  • Provide a management responsibilities map
  • Take reasonable care to ensure that all employees who perform a SMF are fit and proper to fulfil the role
  • Assign 'prescribed responsibilities' to individuals who carry out an SMF
  • Require senior managers to take reasonable steps to prevent regulatory breaches in their areas of responsibility.

The CR applies to employees of relevant firms who could pose a risk of significant harm to the firm or any of its customers (for example, staff who give investment advice or administer benchmarks). Rather than obtain pre-approval for these individuals, firms must certify that they are fit and proper for their roles both at the outset and on a continuing basis.

For background to the SMR and CR, please refer to the October 2014, June 2015 and September 2015 editions of our Exchange - International Newsletter; and background the extension to all firms in our Regulatory Alert (UK) of October 2015.

How will this affect you?

Although the extended regime is not due to come into force until 2018, experience shows that it is a time-consuming and challenging task to implement the new regime. Firms should therefore begin starting their internal dialogue on how to allocate responsibility and what needs to be changed to comply with the new regime.