SMCR fines: Do they work?

22 June 2021

SMCR fines: Do they work?

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Five years on – has the Senior Managers and Certification Regime (SMCR) proven its worth with SMCR fines?

In response to an FOI request submitted by the financial consultancy firm Bovill, investigating SMCR fines, the FCA has disclosed that since the introduction of SMCR in 2016, only 34 investigations have been conducted and only one SMCR fine has been handed out following alleged breaches of the regime. With over 50,000 firms currently under the SMCR, Bovill and others have raised the question as to whether these low figures prove SMCR in its current format as unfit in its role to establish “effective governance in firms by encouraging greater individual accountability”.

SMCR puts the duty of accountability upon the shoulders of senior managers, meaning that firms themselves are now responsible for approving the competence and conduct of certified persons. This can pose several challenges as firms must provide evidence of consistent compliance with SMCR or risk penalisation. However, sanctions against firms and individuals who break the rules have not been forthcoming.

There is certainly a point to be made that more action needs to be taken by the regulator if SMCR is to be considered reliable and effective. Ben Blackett Ord, Chief Executive at Bovill, said: "The number of investigations and enforcement actions against senior managers is important because credible deterrence is central to the FCA’s enforcement work.” The worry is that the lack of action has created a false sense of security within UK firms, where breaches of the regime come with little to no consequence. In light of the surfacing of this data, firms may very well see a renewed vigour and focus from the regulator, as UK regulators look to take stronger action in the future to protect the country’s image as a leader in financial regulation.

That is not to say that SMCR has had a negative impact on conduct and accountability in the sector. A joint study released by Ashurst and UK Finance in 2019 titled SMCR – Evolution and Reform found that the majority of people working in senior manager or control functions believe SMCR has led to improvements in behaviours and processes within firms. This is backed up by a similar evaluation of SMCR conducted by the PRA, which found that 94% of senior managers believe that SMCR has led to positive changes in behaviours in the industry.

However, with COVID-19 hitting the financial sector particularly hard, the FCA will want assurance that firms are prepared for what lies ahead. Despite offering delays to some key deadlines, the FCA has warned against complacency and still expect full accountability under the regime. There is a worry that the pandemic has led to a higher risk of poor conduct, through bad advice or even fraud resulting from lack of proper training or weak culture.

How RegTech can ensure proper accountability with SMCR

For many firms, the key to managing an effective SMCR programme throughout the pandemic has been RegTech. During the early days of SMCR in 2016, and when it was extended to solo-regulated firms in 2019, the reality of how challenging it was to implement became clear. In comparison to the Approved Persons Regime, which SMCR replaced, SMCR demands more rigour, more focus, higher priority and more consideration of proper culture and conduct. In addition, the ongoing management and monitoring of the regime can be extremely burdensome. This is a huge challenge for legacy systems, as the pace of change is simply too fast without automation.

Individual Accountability and Competency software solutions have been helping firms continue to adhere to the SMCR even during these long periods working from home, and will continue to benefit firms as we ease out of lockdown restrictions. The opportunity software provides is easily recognised by Sean Lam, Chief Executive at Walker Crisps.

"The adoption of appropriate technology solutions can not only reduce the administrative workload but also enable management to focus on the more complex and strategic parts of SM&CR, such as the duties of responsibility and accountability."

Find out more about the benefits of technology in helping you avoid SMCR fines and adhere to the regulation with our free Quick Start Guide.


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Written by

Alexandria Claypole

As Content Marketing Executive at Ideagen, Alex delivers insightful and actionable content to help organisations worldwide better understand the intricacies of the auditing, risk and compliance world. With strong roots in the technology sector, Alex is committed to advocating software solutions that support businesses in both achieving and exceeding their objectives.

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