Today, the FCA published its consultation paper CP 17/25 on extending the SMCR to all FCA regulated firms.  This will mean significant changes to existing governance structures, systems and controls for those firms now in scope.  In this update, we set out some key points and what we think this means for regulated consumer credit and lending businesses.


The Bank of England and Financial Services Act 2016 provided for the extension of the Senior Managers and Certification Regime (SMCR) to all FCA authorised firms.  The aim of the regime is to promote a clear allocation of responsibilities to senior managers and enhance their individual accountability. 


Banks and some other types of financial institutions have already been subject to the SMCR since 2016 and in the past 12 months, the FCA has been able to assess how the regime has been implemented by them.  This has no doubt influenced the FCA's thinking in this consultation.  Importantly, those who are already subject to the SMCR should also consider this consultation because the FCA proposes to make changes that will affect them too.  These are set out in Chapter 10 of the CP. 


What does this mean for consumer credit and lending firms?


The FCA has not set a date for when the regime will be extended to all remaining FCA regulated firms. 


That said, those who are in scope of the new regime will need to start mobilising resources to carry out a significant change project to ensure they can demonstrate compliance with the new requirements when they are finalised.  Firms should not underestimate the time they will need to spend undertaking a gap assessment and implementing necessary changes.  More specifically, they will need to:


  • review their current compliance systems and controls;
  • review their corporate governance arrangements and some will need to create a management Responsibilities Map and design handover procedures for Senior Managers;
  • fully appraise their Human Resources (HR) function and review and redraft job descriptions and prepare statements of responsibility;
  • provide training for staff and Senior Managers on their obligations; and
  • ensure all relevant staff are certified as fit and proper.


The high level impacts from the SMCR on consumer credit and lending firms will include:


  • increased regulatory risks and liability for Senior Managers;
  • potentially a decrease in the number of individuals willing to take Senior Management roles;
  • increased risk of failing to incorporate proper procedures and systems to protect Senior Management;
  • a new criminal offence under s36 Financial Services (Banking Reform) Act 2013 for reckless misconduct by a Senior Manager.


A proportionate and flexible regime


The FCA says the regime needs to be proportionate and flexible because of the many different types of firms now in scope, which translates into a diverse range of business models and governance structures.  All firms, including lending and consumer credit firms, will be subject to baseline requirements which the FCA describe as the "core regime".  This means the three main elements of the SMCR will apply to every firm: Senior Managers Regime, Certification Regime and Conduct Rules.


Who will be subject to the enhanced regime?


The FCA also proposes that some firms will be subject to extra requirements because of their size, complexity and potential impact on consumers – these form the "enhanced regime".  They propose to identify enhanced firms by using a series of criteria.  For consumer credit firms, those with an annual regulated revenue generated by consumer credit lending of £100m or more per year will be subject to the enhanced regime.  Mortgage lenders (that are not banks) with 10,000 or more regulated mortgages outstanding, will also be subject to the enhanced regime.  The FCA says that there are no more than 50 firms in total who currently meet these two criteria, but we estimate there may be more.


A reduced set of requirements will apply to a group of firms the FCA define as "Limited Scope".


Next steps


Comments on the CP are due by 3 November 2017 with the final rules being published next year.  Consumer credit firms should consider what type of SMCR firm they are, and in particular, whether their annual revenues would cause them fall under the enhanced regime in the current proposal.   


Please contact us if you have any questions and see our attached brochure setting out how we can help with SMCR compliance in more detail.