The Extension of the Senior Manager and Certification Regime

The extension of the Senior Manager and Certification Regime (SMCR) comes into effect on 9 December 2019 and regulated firms irrespective of size will have identified their Senior Managers and Certified Persons. SMCR applies to those individuals who are not Senior Managers but who could nonetheless pose a risk of ‘significant harm’ to the firm, its customers or market integrity.

A key aspect of SMCR is the shift to firms of the responsibility for assessing fitness and propriety of certified persons. This has a number of consequences for firms:

Annual assessment and records

Firms are required to certify that certified staff have the fitness, propriety and skill to perform their function. Certification must be assessed for the first time by 9 December  2020 and then on an annual basis. The firm will need to put in place procedures and retain good records which can be referred to when issuing a regulatory reference (see below).

Employment contracts and internal codes of conduct/disciplinary procedures

As certified staff must be fit and proper at all times, employment contracts and the firm’s internal code of conduct and disciplinary rules may need to be amended to allow the firm to terminate an employee’s contract should the firm consider that employee no longer to be fit and proper.

Regulatory references

A cornerstone of SMCR, the regulatory reference is destined to become the new passport for most executives working in finance:

• Regulatory references are compulsory: firms hiring staff into certified functions will need to obtain one from the previous employer and will have to provide one when its employees join another firm.

• Their content is mandated by the FCA and includes a statement as to whether the firm has concluded that the individual was not a fit and proper person to perform a function and, if so, details of any disciplinary action will need to be provided.

• The reference covers the previous 6 years but includes information on any serious misconduct prior to that; it may also need to be updated if new facts arise which would have resulted in the reference being prepared differently or if disciplinary action has been taken after departure.

A bad or qualified reference can seriously damage an individual’s career prospects.

Firms must ensure that they act fairly towards their employees by preparing references with reasonable skill and care and based on documented fact; they should give the employee an opportunity to comment on what is in the reference.

Allegations of improper conduct may impact an employee’s regulatory reference.

Therefore, firms should expect employees to act very defensively when faced with any allegations or investigations and matters to be escalated rapidly to one or more Senior Manager if they feel that they have not been treated fairly.

gunnercooke has a dedicated financial services team who work closely with the employment team. They will be happy to advise you on the above. Find out more here.