In December 2019, The Senior Managers & Certification Regime which was rolled out to all insurance intermediaries and brokers, was initially created in response to the 2008 financial crisis to improve standards in the banking sector. One of the core objectives was quite simply to restore confidence in the industry and raise the standards of governance.
In a nutshell, if there is a company breach and a firm does not comply with the regulations set out by the FCA, anyone registered as a Senior Manager could be held personally accountable. We have known for a long time that statutory and regulatory demands are ever evolving, but with accountability now shifting, there is a clear drive from regulators and an emphasis on personal responsibility.
What does SM&CR mean to you?
When speaking with prospective clients, as soon as I utter the words SM&CR, there are nervous laughs and nodding heads from anyone who holds a Senior Management Function – typically those in senior roles. With FCA fines doubling year on year due to the failings of appropriate governance, SM&CR adds further to those concerns and the requirement for a robust approach to risk increases. This is no longer a tick boxing exercise, but rather a standard that must be adhered to and a formal responsibility to take reasonable steps to prevent breaches.
It is critical that all FCA authorised firms can demonstrate to their regulator that they have robust controls and processes in place, and it is likely that the new regime will lead to additional scrutiny and regulatory investigations.
Whilst the implementation date for SM&CR has already passed, there was a 12-month transitional period in which to complete the certification process for existing Certified Staff and to train other staff on the Conduct Rules. This includes ensuring the operational effectiveness of a firm’s systems and controls and maintaining those controls in a cost effective, efficient way.
RegTech – the only feasible solution?
The implications to Senior Managers are vast; ranging from unlimited fines, putting even personal assets at risk, as well as suspensions or even lifetime bans from working in the industry. The risks are so significant – arguably too significant to rely on a manual solution. Human error is almost impossible to avoid – legacy systems, spreadsheets and manual processes mean a poor audit trails with no centralised database of activities and actions.
With SM&CR at the forefront of risks to Senior Managers and their businesses, having a software solution means conduct levels are dramatically improved and by implementing RegTech, this assists with the transition as an effective way to comply with the stringent expectations of the FCA. Faster, Smarter, Safer.