There are still questions over how the Financial Conduct Authority (FCA) will regulate key aspects of the Senior Managers & Certification Regime (SMCR), such as senior management "accountability", as the requirements come into force for all asset and wealth managers, according to legal experts.
Applicable to the asset and wealth management sector as of today (9 December), SMCR introduces new administrative, regulatory and conduct requirements that banks and other large financial institutions have been subject to since 2016.]
SMCR aims to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct, while encouraging a culture of personal responsibility throughout businesses.
Under SMCR, which was introduced in efforts to reduce some behaviour criticised in the aftermath of the Global Financial Crisis, employees are either deemed 'senior managers' or 'certified persons', with the former having far greater responsibility for the conduct of their businesses than the latter.
Firms' responsibilities are connected to their size and function with most firms under the 'core regime', and the largest and smallest firms under the 'enhanced' and 'limited' regimes respectively.
The FCA confirmed this year that 2018 saw a 70% rise in lifetime bans in the industry compared to 2017.
Fund admin product manager at Linedata Services Jon Trinder warned that breach of the new requirements can now mean "the FCA can come to a named individual in the event of a failure", and that asset managers "cannot outsource your accountability".
Crucially, Trinder said there are "still many questions surrounding SMCR", particularly with regard to "how individuals demonstrate that they have taken 'reasonable steps' to ensure that any delegated responsibilities are properly overseen and the level to which they will be penalised, should there be any shortcomings".
Head of regulation, risk and compliance at Alpha FMC Andrew Glessing said that in order to ensure compliance with the regulation, senior individuals will "have to be confident that the business is on top of its regulatory obligations".
He added: "The FCA is shining the spotlight more fiercely on the asset management industry than ever before and we are entering a phase where the regulator will want to assess whether recent regulatory and change initiatives are being successfully implemented."
Complexity- and risk-weighted firm categories under SMCR
• Enhanced will apply to the most significant firms, and applies extra rules to a small number of solo-regulated firms.
• Core is where most asset and wealth management firms will find themselves.
• Limited regime will be applied to others, including internally managed alternative investment funds with fewer requirements.
This article was first published by sister site www.investmentweek.co.uk