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Senior Managers Regime will put an end to reckless advisers


The Spring Budget arrived with more of a whimper than a bang. Beyond the National Insurance hike (which was swiftly U-turned on just one week later) there were few significant developments. It seems the Treasury is keeping things on a steady footing until we are closer to Brexit.

The world of regulation, however, has got off to a much more rousing start. With lots going on at the FCA during the first few months of the year, it is on a much more positive and practical trajectory than previously.

Clearly, the urgent reform of the Financial Services Compensation Scheme funding is of high priority to every adviser firm. However, equally important is reducing its overall liabilities. This is why I have been keeping a close eye on the Senior Managers Regime and its extension to all advice firms.

Holding the bad guys to account

The regime means those managing key aspects of an advice business will be personally liable for bad behaviour. This is going to have major implications for all advisers but none more so than the careless, reckless and criminal.

When these regulations were first introduced last year, they were targeted at banks in response to the abysmal way they had behaved with things like payment protection insurance and price fixing and in the run-up to the credit crisis. The bad behaviour was acknowledged by the banks and the damage to consumers self-evident.

However, it was virtually impossible for the regulator to identify individuals as personally liable for the failings. This meant that, although the banks were fined massive amounts, the management – the real culprits – got away pretty much scot-free.

The Senior Managers Regime rectifies this by ensuring every significant task and process within a financial services business will have to have a named person directly responsible for it. No longer will it be possible to keep passing the buck on to others.

This will be a real plus for the advice sector, as the vast majority of conscientious and honest firms are, quite rightly, utterly fed up with paying ever-increasing FSCS fees and seeing the reputation of advice tarnished. Thankfully, the firms capable of such tarnishing are a tiny minority, but the reputational and financial damage they cause to the rest of the sector is huge.

Whether these individuals are careless when arranging pension transfers, reckless when dealing with SSASs or criminally running scams, their time is running out. What is more, no longer will they be able to walk away from their responsibilities, free to “phoenix” and simply re-emerge under a new guise.

“The SMR is going to have major implications for all advisers but none more so than the careless, reckless and criminal.”

A financial services firm is not an abstract collection of desks, computers and faceless individuals but the sum of its parts. It is the people within the firm that decide its actions, risks and direction.

So while we hope the current consultation on the FSCS levy will dramatically reduce the proportion of costs falling on the sector, the Senior Managers Regime will undoubtedly help this further. Making named individuals responsible for their actions will result in much less irresponsible and reckless activity from badly behaved advisers.

Both reputationally and financially, the new rules will significantly benefit the responsible and caring advisers that strive to serve their clients with professionalism and integrity.

Ken Davy is chairman of The SimplyBiz Group


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. No SMR for the FCA though, despite history showing us all too clearly that one is very much needed.

  2. Thank you Ken, for the link to the CP16/42 response form, please could I ask everyone to follow the link, that Ken has kindly provided above, click on link and complete the CP16/42 form, this is crucial for the current mess that is the FSCS Levy, it is your one and only chance to change the way your firm is being priced out of the business we all love.

  3. Whilst I fully support a need for such measures and ability to gain redress from those who clearly intended to mislead or commit fraud. My issue is that this will likely be used to strip ALL limited liability arrangements within financial services of their limited liability. There are times when things do wrong, guidance as we know is very much open to interpretation. What is to stop the regulator just stripping the assets of every adviser when it suits their need to insure no client is seen to suffer losses. At what point did financial advisers become segregated from the rest of the UK population and removed from the protection of the laws of the land?

    • When the regulator realised that the FSMA 2000 afforded them carte blanche to do whatever they want without having to seek permission from or answer to any outside body.

  4. well said Julian about time the Senior Managers Regime applied also to Individuals at the FCA and they were held to account for Arch Cru and numerous other useless decisions

  5. I agre with Ken Day that ” senior Managers”, to be held personally accountable, will have a great impact on the fraud and deceit within Financial Services. Unfortunately I do not agree that it wil redress or solve the problem for the Governments Ponzi Scheme – where individuals are protected by their Senior Managers CEO’s and Chairmen – whilst the Government levies fees on everyone else – who then pass it on to the client by way of larger fees. I have just gone through a clients Probate where the Nationwide Building Society ( who claim to be ” mutual ” ) has charged client a fee in excess of £ 3,000 as a tie agent/ restricted adviser ( in more ways than one ) for ISA transfer form cash to L&G ( now its Aegon’s turn) using Co Funds administration ? On top of this there is the on going fees commissions and charges – and until the Feckless Consortium Association ( FCA ) get to grips with these activities – consumers should not trust their bank or Restricted adviser. The Problem is as it has always been ” A sever lack of interest or Corporate Governance “, by the Nancie boys in charge of Product Providers – and their sales teams Banks. Independent Advisers – and good restricted advisers like St James Place and others act with integrity and professionalism – and Ethics. The reckless like TSB Bank Nationwide Barclays Bank BISCO, Halifax Bank of Scotland Abbey National Santander and others are allowed to run riot over clients accounts, racketeering removing clients hard earned savings, switching churning – without ANY Corporate Governance – or FCA interference ( or request ). Interestingly we see the churning of financial institutions following the Invasion of the American Banks and investment houses – who cannot make money over there . . .so they come over here eg Metro Bank Wells Fargo Blackrock investment who are major shareholders in Barclays along with Qatar. So who can we trust with our savings ? Certainly not the Feckless ones in Faulty Towers, I.E Canary Wharf – this is not for whistleblowers – only budgie cheeps . As they say in Canary Wharf – what succeeds – a toothless budgie .

  6. I’m going to go out on a limb here and suggest that the SMR for small and small-medium firms is self-defeating and dangerous for one simple reason – it will be easier for wrong-doers to hide.

    In large firms it would take one heck of a conspiracy for wilful wrongdoing to take place and SMR makes sense in terms of making senior people accountable because they are essentially independent of advice and operations. However, in smaller firms the senior manager, adviser, and compliance oversight are often vested in one or two people. If they and/or their partners/adviser(s) are out to do no good then they are better off under SMR – less scrutiny from the FCA and no visibility on the register for clients. Indeed, from a client perspective (surely what’s most important here) they will have no way of independently confirming the person they are dealing with is an adviser.

    It will also make it easier for rogue advisers to hide. If they don’t appear on the register then firms recruiting them have a significant deficit in terms of ‘checks’. Further, the FCA keep valuable information on these advisers that is simply not visible to firms. It wouldn’t be the first time a firm I have worked for were asked by the FSA/FCA to check the answers on the Form A with a candidate, i.e. they were aware questions had not been answered truthfully. When asked how the firm could have known they acknowledged they couldn’t, it was information known only to the FSA/FCA.

    It doesn’t take much imagination (which crooks have plenty of) to think up ways of taking advantage of clients under the SMR. Yes, crooks will be personally responsible but if they were worried about that they wouldn’t be crooks in the first place…

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