This blog takes a look at various points in the lifecycle of a senior manager within a firm and how best they can ensure compliance with SMCR.


Senior managers have a special role to play; either because they make important decisions or because they oversee the decisions of others. They lead the organisation and shape the culture through the tone from the top. Jonathan Davidson, Director of Supervision, (Retail & Authorisation), Financial Conduct Authority.

Introduction

With the extension of the Senior Managers and Certification Regime (SMCR) to all firms authorised under the Financial Services and Markets Act 2000, firms should not only be considering their implementation processes but also the requirements imposed on senior managers once the regime is in place – the day two requirements This blog takes a look at various points in the lifecycle of a senior manager within a firm and how best they can ensure compliance with SMCR.

Organisation and Delegation

Nearly all senior managers will have teams to manage. Ensuring compliance with SMCR will often depend on how a senior manager interacts with, motivates and manages their team.

Resourcing within a team is undeniably important and senior managers should closely monitor resourcing issues and the capacity and capability of individuals in their team. Gaps in resourcing can be an indication to the regulator that there is insufficient oversight over the senior manager's business area. Therefore it is crucial that where gaps exists, these are acknowledged and plans are put in place to address these deficiencies. This will be particularly relevant in instances where employees leave the business. Senior managers should undertake succession planning in order to ensure that key tasks and outputs are not left unallocated.

Where a senior manager delegates tasks to members of his or her team, consideration must be given as to whether the employee who will undertake the activity is an appropriate individual. This will be especially pertinent for any employee carrying out a significant harm function, however an organisation which wishes to enact good practices should apply this principle to all employees within a team. Delegation nonetheless does not absolve the senior manager's responsibility. Close oversight over key tasks should remain and senior managers should be prepared to review and discuss output from staff.

Senior managers should look to ensure clear reporting lines are put in places in order to demonstrate to employees who they are accountable to and also make them aware of escalation channels.

Demonstrating reasonable steps

One of the cornerstones of taking accountability under SMCR is the need for senior managers to evidence, and if called upon, demonstrate to the regulator the reasonable steps they took to mitigate risk. While the FCA's consultation papers on SMCR have not gone as far as to formally define or lay out what reasonable steps would look like there are some hints as to the approach of the regulator. Mark Steward, Director of Enforcement and Market Oversight at the FCA, for example described someone taking reasonable steps as 'not exhibiting a negligent or reprehensible state of mind, who is conscientious, exhibiting, through diligence, a keen and watchful eye on his or her fielding of responsibility'.

The evidencing and demonstration of reasonable steps will always lie with the senior manager. Firms may wish to implement policies that bind senior managers into recording their actions. However good practice, for all senior managers, would be to keeping a clear log of what they have done to act diligently within their role and for their responsibilities.

Continually reviewing, and where necessary improving, reporting processes and procedures is an important facet of taking reasonable steps. Internal reporting is where a senior manager will obtain most of their MI and they should look to critically assess the information they are receiving. Information flow and reporting lines will need to be formalised under the SMCR and they should be communicated to the wider firm employee group where appropriate.

Undertaking periodic reviews of control frameworks is another key exercise that senior managers should undertake to demonstrate reasonable steps. The better and more pertinent the MI a senior manager receives, the greater the opportunity to  allow them to identify solutions to issues, with implementation of additional processes and controls to further minimise any risks.

Senior managers should be proactive in their day-to-day approach. They should be open to discuss key challenges and decisions with their team and seek to document actions and agreed decisions in a diligent manner.

 

Managing regulatory change

Regulation in financial services is continually changing and adapting, particularly in a world where so much change is driven by evolving technologies. Senior managers are expected to demonstrate the relevant competencies for the role they perform, so it is crucial that they keep up to date with any key decision-making factors in relevant market events and regulatory change. As well as managing the regulatory change is an important step in demonstrating this.

There are a wealth of ways of ensuring you keep abreast of regulatory change including industry events such as forums and seminars, engagement with legal and professional services firms, etc. It can often be tempting to send delegates to such events, but it is important that senior managers are able to comfortably understand technical regulation and challenges.

Senior managers should also consider implementing structured training to members of their team. A team well versed in the technical challenges that lie ahead can give considerable peace of mind, both to the senior manager and the regulator, when it comes to demonstrating the reasonable steps taken.

With regulatory change often comes complex implementation programmes. Competent senior managers should take steps to develop a clear action plan which includes key deliverables and assigned owners to allow for completion of work-streams. Where a risk or issue is identified, action should always be taken and recorded with a clear rationale as to why those steps were taken. Inaction will often lead to questions from the regulator. Where pressure points are reached, consider whether additional support is required and look to escalate issues to appropriate executive committees and governing bodies.

In some instances the implementation programme will throw up problems, however good senior managers will see this as an opportunity to learn from mistakes. Consider critically analysing change projects at their conclusion to identify what could have been done better. This valuable information can then be embedded into future testing scenarios and training. The weaknesses identified may be systemic and so catching them early can be of huge benefit to the entire firm.

Outgoing process

Not all senior managers will remain at a firm for life. To maintain continuity on day-to-day operations, a firm and a senior manager should work together to ensure an orderly exit which minimises disruption to the business.

Under SMCR for enhanced firms there is a requirement for departing senior managers to produce a handover note. However good practice would be that in any firm where there is a departing senior manager a form of handover should be agreed and documented. Also it would be better not to leave this handover note until the end of a senior manager's tenure at the firm, but rather treat it as a document that is updated on an ongoing basis throughout the senior manager's employment at the firm. 

Recording responsibilities, actions, risk concerns and any other pertinent information on an ongoing basis can ensure a greater level of accuracy and is an excellent succession plan should the senior manager leave the role unexpectedly. While not an exhaustive list, a good handover note will likely include material information related to the discharging of duties, assessments on risks and concerns, outstanding issues, opinions based on thorough due diligence and any concerns the regulator has raised with the firm historically. Where possible, the current senior manager should look to work with HR, and other relevant departments, and to meet the incoming senior manager.

How Addleshaw Goddard can help

Addleshaw Goddard's Regulatory Risk and Compliance team has an experienced track record in delivering regulatory change projects. Our close links with the regulators, market insight and ability to work closely with our legal colleagues means we can provide a holistic approach to the specific needs of you and your business. In particular we can:

  • reviewing your current controls framework to provide assurance that your systems, processes and polices meet regulatory expectation;
  • developing handover procedures in conjunction with our legal colleagues in our employment department;
  • assist in your regulatory change projects by providing advice, assurance and project management assistance
  • conduct tailored training sessions with senior managers and employees; and
  • provide access to our award-winning horizon scanning tool 'Torchlight' to ensure you can keep abreast of regulatory change.

Key contacts

Sarah Herbert

Sarah Herbert

Compliance Director, Financial Regulation
London

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Nikesh Shah

Nikesh Shah

Senior Compliance Manager, Financial Regulation
London

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