Senior Managers and Certification Regime (SMCR) & Employment Screening
The Senior Managers & Certification Regime (“SMCR”) has replaced the Approved Persons regime of the FCA and marks a paradigm shift in the UK financial services industry.
The SMCR is a regulatory framework for the conduct and responsibility of key personnel. It is an FCA/PRA regulation concerning governance and has two core aims:
- Encourage a culture where staff at all levels take personal responsibility for their actions; and
- Make sure firms and staff clearly understand and can demonstrate where responsibility lies.
The SMCR emerged from the global financial crisis to provide more prescriptive regulation of employee conduct and expertise, reduce harm to customers, and enhance the stability of the market.
Senior Managers Regime
The Senior Managers Regime focuses on those persons in organisations who inhabit roles requiring regulatory approval.
The Certification Regime applies to those individuals in organisations who are not senior managers (ie do not exercise a controlled function) but could still have a significant impact or pose a significant risk to a financial institution and or its customers and therefore require appropriate consideration as to their continued suitability to perform their role.
Criminal Record Checks
In most instances SMCR requires that those individuals who are going to occupy a Senior Management Function (SMF) undergo a ‘standard’ criminal record check. The standard criminal record check details both spent and unspent convictions. Criminal records are not mandated for those individuals who will be occupying a certification function.
This means Certified Persons are unlikely to be eligible for standard criminal record checks and will only be eligible for a basic criminal record check (detailing unspent convictions only). Basic criminal record checks can be undertaken at the firm’s discretion but are common industry practice and considered invaluable for assessing an individual’s integrity.
Another requirement is that a business wishing to appoint a Senior Manager, Certified Person or Non-Executive Director must seek references from any business where that individual has worked in the last six years and, where that business is regulated by the FCA and or the PRA, such references should be regulated references. Regulatory references should mirror the format of the template outlined in SYSC 22 of the FCA Handbook. This template encourages consistency in the type of information transmitted between firms.
Recipient firms who are also regulated by the PRA/FCA are required:
a) to respond within 6 weeks in the prescribed template; and
b) to provide updates to their references where applicable (ie where a firm has provided a reference but later discovers misconduct or other significant information, they are obliged to update the firm to whom they previously provided a reference).
Which Roles Are Affected By The SMCR “Fit & Proper” Rules?
The fit-and-proper-person test or director’s test is a test aiming to prevent corrupt or untrustworthy people from serving on the board of certain organisations.
As part of the extension of the SMCR, the application of the fit and proper extended to cover Certified Persons, as well as Senior Managers and non-approved NEDs (except at Limited Scope firms).
FIT sets out detailed guidance about the types of things firms should consider as part of assessing a person’s fitness and propriety. This includes: honesty, integrity and reputation competence and capability, including whether the person satisfies any relevant FCA training and competence requirements financial soundness.
Under the SMCR “Fit & Proper” Rules apply to:
- Senior Managers
This covers anyone who undertakes a Senior Management Function. Each senior manager will have a Duty of Responsibility and a Statement of Responsibility, but there is no need for a responsibilities map or handover procedures.
- Certified Persons
This covers people who are not senior managers but whose job means they can cause significant harm to the firm or its customers. For example, algorithmic trading, client dealing, financial modelling etc.
- All Staff Under Conduct Rules
These basic rules apply to all employees except ancillary staff who do not perform a role-specific to financial services. There are five high-level obligations which apply to all, and an additional four duties for senior managers.
Fitness & Propriety
A key component of the SMCR is the expectation that firms will take appropriate steps to satisfy themselves individuals are ‘Fit and Proper’ to perform these most senior roles. Conducting robust background screening checks is a critical aspect of the ‘Fit and Proper’ assessment process as it enables clients to be confident:
- a) the information they provide in Form A applications for SMFs is accurate and truthful;
- b) the screening of Certified Persons adequately meets their obligations to self-regulate.
How Does the FCA Monitor Regulatory Compliance With The SMCR?
To assess the impact of the SMCR on a company and its employees, the first step is to decide whether the company is a Core, Enhanced or Limited Scope organisation. Many companies are going to be core firms. Identifying the existing roles and responsibilities of workers will be the next step. Then a company can map its setup to the SMCR specifications with this knowledge. The final piece in the puzzle is to address any discrepancies or issues that may occur.
The FCA can help with compliance monitoring and assurance to the board that the firm is operating within a compliant framework.
Some of the services commonly provided include:
- initial risk assessment
- business development
- help with procedures
- file audits
- technical support
- training, and
- professional indemnity insurance (PII) cover
What action can the FCA take?
The Financial Conduct Authority’s (FCA) enforcement powers include the right to impose a penalty on a company or individual and make a public statement. It also has the authority to investigate and take disciplinary action. Therefore, the FCA has the power to launch criminal proceedings.
Vero’s SMCR Screening Services
Our relationship with you and your employment candidates is underpinned by our open approach and robust processes. Every aspect of our service has been carefully designed to deliver a personalised, positive experience for business leaders, hiring managers and HR teams alike.
We are experts in employment screening and have been working as trusted partners to HR teams for over 20 years. With specialists in compliance, human resources, digital technology and more, our knowledge, expertise and in-house technology will protect you from risk, giving your candidates the best possible experience and ensuring you can have confidence in every appointment you make.
Our SMCR Screening Services include:
- Financial integrity (credit) checks
- Financial services register checks
- ID document checks
- SMCR regulated employment references – 6 years
- Professional qualifications checks
- UK criminal record checks
- Directorship searches
- Compliance database checks
- Adverse media searches
- Gap analysis
- Highest education
SMCR Checks – For Enhanced, Core and Limited Scope companies
Previously there was no mandatory requirement to carry out background checks to ensure individuals carrying out controlled functions were fit and proper. Now, under the new SMCR regime, the FCA has stated:
- There is a mandatory requirement for Senior Managers to perform criminal background checks; and
- Under the certification regime, there is a requirement to re-certify individuals at least once a year.
Vero has partnered with Robert Quinn Consulting, a market-leading provider of compliance consulting, regulatory hosting and online training, to develop a new product which ensures Enhanced, Core and Limited Scope companies can meet these new background screening obligations in full, as well as giving them access to a broader range of services to support the implementation of SMCR.
The new product, SMCR Checks powered by Vero Screening, is specifically designed for Enhanced, Core and Limited Scope companies. It gives firms access to Vero’s secure employee screening platform VEROLIVE, where they can initiate all their background checks quickly and cost-effectively.
Find out more about Robert Quinn Consulting and their wider SMCR services, including background checks here.