Book review – Conduct and accountability in financial services: a practical guide

Boards, senior managers and financial services professionals need to be ready for the Senior Managers and Certification Regime (SMCR), which goes live for the investment sector in December 2019. This book by Stacey English, Chartered MCSI and Susannah Hammond, Chartered FCSI, provides practical guidance and best practice tips
by Paul Bryant

There’s no shortage of reading material on SMCR. The FCA, and professionals of all guises – consultants, solicitors, accountants, even IT companies – have their reports, guides or white papers.

But these, while useful, are unlikely to be enough. Senior managers (including directors) will need to do more than build a working knowledge and then leave implementation to the compliance department. The primary aim of SMCR is to change the behaviour of senior managers in particular, as well as other staff, by shifting responsibility from the organisation to the individual.

So managers will need to roll their sleeves up and involve themselves in the operational aspects of SMCR planning and implementation. Co-authors Susannah Hammond, Chartered FCSI, senior regulatory intelligence expert at Thomson Reuters; and Stacey English, Chartered MCSI, head of global regulatory intelligence for Thomson Reuters, have written the book with this in mind.

Susannah says: “The book is definitely not aimed solely at compliance officers. It is aimed at managers and senior managers, to give them information, help them engage better with their compliance officers, and allow them to understand the sheer breadth of things they now need to worry about, and be relatively skilled in thinking about.” 

Stacey says: “Accountability regimes like the SMCR fundamentally impact everyone working in financial services. The book is designed to help the financial services sector make sense of both what’s required and how individuals can manage their own personal accountability.”
An SMCR deep-diveThe first third of the book covers the context of SMCR – including a detailed account of how it emerged from the failings of the financial crisis – and delves into what the regime is all about. 

Readers are provided with detailed explanations and insights into the three pillars: 
  1. Senior Managers Regime (SMR) – which requires that senior managers are pre-approved by the FCA, create clear ‘statements of responsibility’ and are able to prove they have taken ‘reasonable steps’ to discharge these responsibilities.
  2. Certification Regime – which requires firms to take on the task (from the FCA) of certifying staff who are not senior mangers but still hold significant responsibility.
  3. Conduct Rules – which will apply to nearly all staff, some of whom won’t have had regulatory rules applying to them before (only ‘ancillary’ staff, such as cleaners, are exempt).

The book separately covers how the regime applies to banks, insurers, and the investment sector. And most importantly for the investment sector – with its wide range of firm sizes – how SMCR is tailored depending on firm size. Clear decision trees and tables show how to determine if a firm is defined as ‘limited scope’ (with relatively light-touch regulation), ‘core’, or ‘enhanced’ (with the most onerous demands), and which elements of the regime apply to each.

There is also guidance on how firms are expected to transition between the existing Approved Persons Regime and SMCR. See extract below. 

“The FCA has set out two transitional provisions which, while providing additional time to firms and their senior managers, should not be used as a reason to delay consideration of the impact of SMCR. The two transitional provisions are:

  • Firms are required to have identified those staff who will be covered by the Certification Regime by 9 December 2019, but will have until 9 December 2020 to complete the initial certification process.
  • All senior management function and certification staff must be trained and abide by the conduct rules by 9 December 2019 but, again, will have until 9 December 2020 to train all other staff on the conduct rules.”

SMCR in practiceThe book also covers on-the-ground practicalities and challenges of implementation and ongoing compliance. 

Challenges for the board, including non-executive directors, are discussed in detail, such as best practice on how boards can influence culture and mitigate conduct risk – areas identified by regulators as deserving of board-level attention because they played such a big role in recent PPI misselling scandals. For example: “Including a conduct and culture report as a standing agenda item for board or executive committee meetings covering conduct incidents, strategic decisions that may increase conduct risk, an assessment of new and emerging conduct risks and conduct risk metrics for businesses and functions.”

New demands on human resources (HR) management gets attention because many functions that involve HR – including recruiting, onboarding, remuneration and reward strategy, performance management, training, disciplinary procedures, terminations, references – will be directly impacted by SMCR (such as evidencing fit and proper assessments at recruitment stage and on an ongoing basis thereafter). 

smcr_book_175Conduct and
accountability in financial services: A practical guide
, by Stacey English and Susannah Hammond. Published by Bloomsbury Professional, 23 November 2018
There is even an extensive and very practical section on how managers should be thinking about interacting with regulators. It includes discussions on ‘regulatory relationship management’ and lobbying, as well as what to expect from and how to deal with investigations (such as surprise ‘dawn raids’) and enforcement actions.

The book also covers how managers might meet their responsibilities in areas such as: maintaining adequate ‘line-of-sight’ for areas of the business under their control (eg with beefed-up management information systems); conflicts of interest (ideally, jointly managed by business units and compliance); outsourcing (eg the demand for far greater due diligence and oversight); and improving skills throughout the organisation (eg, the need for deeper technology skills at board level – in the context of increasing cyber and data protection risks). 

The authors have provided many case studies throughout the book. Some detail the inadequacy of previous regulations and how the new regime is intended to address them. Others illustrate best practice in compliance and risk management. These could be put to good use in SMCR training sessions, and also help managers communicate the practicalities of the new regime, using examples.

Copies of this book in the workplace are likely to become rapidly dog-eared in the run-up to December 2019, as directors, managers, financial professionals, compliance, HR, and legal staff all ramp up their efforts to understand SMCR. And it’s unlikely to find it’s way into the bin after that. SMCR is an ongoing project. I suspect this book will be referred to time and again.

Seen a blog, news story or discussion online that you think might interest CISI members? Email
Published: 01 Apr 2019
  • Compliance, Regulation & Risk
  • The Review
  • Regulation
  • SMCR
  • Senior Managers Regime

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