Money Marketing looks at the main considerations for small firms and how they can meet FCA expectations ahead of December’s rule changes
With the Senior Managers and Certification Regime set to extend to all authorised firms on 9 December this year, advice firms of all shapes and sizes will need to be well-versed on the FCA’s lengthy list of expectations.
Whether IFAs are working as one-man bands, as part of a partnership, or in a small- or medium-sized business, the SMCR is set to focus on individual accountability across all company structures.
The regime has been structured using three tiers: limited, core and enhanced firms. There are additional requirements for larger firms and fewer for smaller firms or those that do not carry out certain regulated activities.
Firms’ senior managers will also have to have “statements of responsibilities” outlining their areas of oversight.
Sesame Bankhall head of group compliance Carl Wallis says smaller firms may have it easier than expected with the requirements, but size makes it likely they will face a tricky implementation period.
He says: “Although one- and two-man-band firms will need to understand how the regime applies to them and make sure that responsibility lines are clear, which will be obvious in the case of sole traders, it’s likely that the policies and procedures these firms have in place to demonstrate compliance with the regime will not have to be as detailed as those adopted by larger firms.”
Preparation for both parts of the regime will include firms having to detail preparations for the changes after 9 December and “business as usual” policies and processes.
Senior managers also have to meet requirements of evidence to prove they are fulfilling their roles. If someone is a one-man band, this process can quickly bite into valuable time.
Eversheds Sutherland managing director Simon Collins says: “You must also detail how you will meet the record-keeping requirements and how policies, processes, statements of responsibilities and responsibility maps will be updated and adapted over time, including processes for updating references already given if new information comes to light about an ex-employee, for example.”
Wallis adds that the requirements for vetting prospective employees will be a significant challenge.
He says: “The rules in this area have been strengthened and firms will need to follow a robust process to certify advisers as competent and fit and proper when they join and each year thereafter.
“Additional requirements surrounding references will also be introduced, such as a requirement to tell a firm that has previously requested an SMCR reference if a former member of staff has contravened the new conduct rules.”
Smaller firms will also need to make sure that their staff clearly understand the new conduct rules.
Statements of Responsibilities: What is expected?
A SoR is a single document that every senior manager will need to have, clearly setting out their roles and responsibilities. This is required under the Financial Services and Markets Act. SoRs need to set out what senior managers are responsible and accountable for, rather than how they carry out those responsibilities. A SoR needs to be self-contained and not refer to other documents. SoRs should be succinct and clear, without unnecessary detail.
If a senior manager holds multiple senior management functions at the same firm, they will only need one SoR, but this must clearly describe all of their responsibilities.
If a senior manager holds multiple SMFs across different firms within a group, they will need one SoR per firm. You will need to submit a SoR when applying for a senior manager to be approved.
You will also need to keep the SoR up to date, and resubmit it whenever there is a significant change to a senior manager’s responsibilities.
Source: The FCA
NextWealth managing director Heather Hopkins says smaller firms may scramble to prepare close to October, but warns that rules may start to bite towards the end of the year if firms do not get started.
Most of the discussion on SMCR is coming from the compliance outsourcing firms who are trying to raise awareness, Hopkins adds, as opposed to advisers.
“There seems to be more of a sense of urgency to take advantage of tax incentives for investing before a potential change of government next year. This will be higher up the radar than the SMCR for most smaller firms for now,” she says.
However, research last month from Fidelity Funds Network and NextWealth found advisers still identify compliance as their main business challenge.
Top complaints include regulation costs that eat into advisers’ face-to-face time with clients, changing rules, and the erosion of consumer engagement compliance processes can cause.
Despite this, Wallis says small firms have the support of the FCA and the assurance that firms of all sizes will struggle with different aspects of the regime.
“Almost all staff working at the firm will be subject to new rules,” he says.
“The FCA has stated in several of its communications that it expects the regime to be applied proportionately, however, and this can be seen in its approach to this.”