I first wrote about the senior managers and certification regime (SM&CR) for Illuminate back in 2017.
At the time, the expectation was that the new regime would start in mid-2018.
Of course, we all know now the new regime doesn’t come into force until later this year. But that gives us an opportunity to provide a bit of an update as to what firms should be doing to prepare.
One of the more pressing aspects of the SM&CR is the requirement to train senior managers and certified staff to abide by the code of conduct rules, when these come in on 9 December.
The FCA expects firms to identify and train senior managers and certification staff so that they can comply with the conduct rules from the start of the regime. Firms will have 12 months to train other staff on the conduct rules.
Before we get into the specifics around training, it's worth a quick refresh of what the conduct rules state.
There are two tiers of rules: tier one is for all staff to abide by, and tier two applies to senior managers.
Tier one - individual conduct rules
1) You must act with integrity
2) You must act with due care, skill and diligence
3) You must be open and co-operative with the FCA, the Prudential Regulation Authority (PRA) and other regulators
4) You must pay due regard to the interests of customers and treat them fairly
5) You must observe proper standards of market conduct.
Tier two - senior manager conduct rules
SC1) You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
SC2) You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
SC3) You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
SC4) You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.
What your training could look like
The good news is there plenty of material available to help you shape your training.
Beyond the guides, factsheets and action plans, you will also have a myriad of material to draw up on from within your own firm.
To give some examples, this might include the firm's internal systems and controls, such as your complaints procedure, and individual job descriptions.
The FCA has produced a couple of useful videos around the SM&CR, including this one on banking leaders' experiences of adopting the new rules.
These are also a great way to start any training session, though we would recommend business owners watch them thoroughly before sharing them with staff, to help you anticipate any potential questions.
A combination of all these sources is likely to produce a training session which is balanced between the rules and the details of the SM&CR itself, along with some targeted and focused discussion on how the firm puts it all into practice.
You may also look to include some form of knowledge assessment - we've got simple case studies that can help tease out understanding of how the rules could be breached in day-to-day activity.
Conduct rule breach reporting
The training should also look to make sure all staff are aware of the need to notify the FCA when disciplinary action has been taken against a person for a conduct rules breach.
You only need notify the FCA of disciplinary action is only required if the action was because of conduct rules breaches, rather than for any other reason.
Disciplinary action means:
- Issuing a formal written warning
- Suspension or dismissal of a person, or
- Reduction or recovery of remuneration (also known as clawback).
We understand clawback to mean where a firm is retaining or withholding any future earnings or commission because of disciplinary action.
For senior managers, the FCA must be notified within seven business days of concluding disciplinary action using form D (or form C where the individual will no longer be approved).
For other individuals, the FCA requires the notification to be made annually using the Gabriel reporting system.
Training delivery and evidence
At a generic level, team meetings are a great way to raise awareness of the SM&CR and the issues that relate to the business. It'll help to create a relaxed atmosphere, where everyone feels able to chip in with comments and to ask questions.
At a specific level, one-to-one meetings with certification staff are a good way to provide individual support and guidance so that the conduct rules become tangible for each person and their role.
Similarly, private meetings with team leaders and managers will allow each member of staff to explore just what the SM&CR means for them on a personal level.
We recommend advisers record all such training in their continuing professional development (CPD) statements.
For non-advising staff, who may not be required to retain CPD records, minutes and notes should be recorded as to what the training consisted of, and who attended. These records should be then stored safely as with the CPD records.
Beyond training staff to abide by the code of conduct rules, there are other things to either consider or put in place as part of your SM&CR preparations. These include:
- Making sure the structure chart for the firm is up to date and accurate
- Review or update job descriptions as necessary
Making sure your senior managers have a written and agreed statement of responsibility.