Understanding the Senior Managers and Certification Regime


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Interviewer: Polly, what is the senior manager’s and certification regime?Polly James: This is a new regime coming into force in March this year which will affect individuals working in banks and PRA authorised investment firms and essentially, in a nutshell, it’s going to do three things. First, it will replace the current approved person’s regime for the most senior people working within banks and it will make it much clearer exactly what, in regulatory terms, people are responsible for. So, for example, there will be a new set of prescribed responsibilities, each of which has to be assigned to a named senior manager within the bank or PRA authorised investment firm, so that the regulator knows exactly who’s accountable for that. Secondly, it’s going to introduce a new certification regime which is going to apply to everybody who carries out what’s known as a significant harm function within the bank and for those people, they will have to have their fitness and proprietary certified on an annual basis by the bank that’s employing them. And the third thing that it will do is it will introduce a set of conduct rules which for the first time apply to everyone, or almost everyone working in banks, which impose personal regulatory duties upon them for the first time. So that’s bringing huge numbers of people, for the first time, within the scope of regulation.Interviewer: What’s the aim of it? What does it hope to achieve?Polly James: Well, it’s being sold as a regime for strengthening personal accountability within banking. What that actually means is it’s about making it easier to bring people to account for regulatory failing. So the Parliamentary Commission on Banking Standards said that one of the main problems it encountered was that there was an 'accountability firewall', was the term that they used, which prevented the regulators from being able to see who, exactly, was responsible for what in regulatory terms. This regime is designed to solve that problem. So if we ever did have another financial crisis the politicians would expect the regulators to bring people to account and this regime is designed to facilitate that.Interviewer: So Polly, is it just banks and PRA authorised investment firms that need to worry about this?Polly James: That’s right. For the moment it does only affect banks and PRA authorised investment firms, however, as long as the Bank of England and Financial Services Bill goes through, the regime is expected to be extended to everybody who is regulated by the PRA or FCA, with effect from 2018. So those firms who are not yet within scope but very likely to become within scope by 2018 would do well to be looking around now at what the banks are doing, so that they can learn the lessons from how to implement this in the first place and also where the challenges are that they need to be anticipating.Interviewer: So Polly, what are the main challenges facing banks and PRA authorised investment firms going on with this?Polly James: Well our experience is that it is actually the certification regime that’s brining the most challenges to banks in implementing all of this. It’s going to require a fairly major overhaul of the bank’s internal policies and procedures needing probably input from legal, compliance, risk, HR and a huge range of different perspectives needed to make sure that they get all of this right. So for example, under the new regime, there is going to be a requirement to certify people fit and proper on an annual basis, as I mentioned. If a bank is facing the annual deadline for certification and has an employee under investigation, for example, for a conduct breach, it’s then quite a difficult judgment call as to what you do about that person. If you certify them fit and proper then you risk being in breach of your regulatory duties because you can necessarily be satisfied that they are fit and proper in those circumstances. If you decide not to certify them, then you cause the individual a huge amount of difficulties, potentially, because that information will stay on their file for a long time and quite possibly influence their possible future chances of being employed in another bank. So, it's a very sensitive judgment call that the bank will have to make. Another very difficult area concerns how to implement the new rules on regulatory references, which are going to come in under the new regime. WGTC provide a regulatory reference going back six years in respect of senior managers and certification staff. The other major development on regulatory references is that banks will be required to update a regulatory reference that they’d already given if they become aware of information which is relevant to the person’s fitness and proprietary. All of these judgment calls are going to be very difficult for banks to deal with, going forward, and it will be important for them to really give careful thought at the implementation stage to their policies and procedures, to make sure that they are going to be in a position to deal with them in a way that exposes them to the least risk across the board in the future.Interviewer: Polly, thank you.Polly James: Thank you.

The Senior Managers and Certification Regime (SMCR) comes into effect on March 2016. For the moment, the new regime it does only affect banks and PRA authorised investment firms, and it will do three things:

  1. Make it much clearer what people are responsible for
  2. People who carry out a significant harm function within the bank they will have to have their fitness and proprietary certified annually
  3. For the first time, almost everyone working in banks will be within the scope of regulation

In this short video, Polly James dissects where this new regime has come from, what it is for, and where we see the practical implementation challenges arising for affected firms.

Report: How should you respond to developments in financial regulation this year?

Our team of financial regulation experts have produced a comprehensive report examining the key developments this year.

  • Includes over 30 practical articles and a calendar setting out the key dates for your diary.
  • Key topics covered include MiFID II, SMCR / SIMR, cyber risk and how to survive a regulatory interview.

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