Question everything - assume nothing

Posted: 8th June 2015

The Senior Managers Regime (SMR) is nigh, and we don’t blame you for having questions. It’s through questioning that the picture becomes clearer.

And with the answers, you can start preparing, changing, and getting where you need to be.

Now the FCA’s given us more insight into its approach to improving accountability in banking, I’m sure you’ll have questions galore. When is it actually happening? How must we prepare? Where to start?

If you’re a deposit taker, some of these questions have been answered:

WE’RE HEARING TIMESCALES ARE TIGHT, SO…WHEN WILL THE NEW REGIME BE IN OPERATION?

The new regime will come into force on 7 March 2016. Your firm needs to let the FCA and PRA know by 8 February 2016 which of your approved persons will be ‘grandfathered’ into senior manager roles under the regime. This may seem longer than you anticipated, but trust me when I say “it’s time to crack on.”  You have less than a year to deliver a thorough overhaul of your firm’s governance, culture and controls.

Here’s a look at the timescales for implementation

AND WHAT IF I’M AN INCOMING BRANCH? WHERE DO FOREIGN BANKS STAND?

While a separate consultation paper on non-UK banks has been issued, the Treasury has confirmed that, essentially, the regime will apply – in its entirety – to foreign banks.

WHAT’S THE POSITION IF I’M A NON-EXECUTIVE DIRECTOR (NED)? WE’RE NOT EXACTLY INVOLVED IN THE DAY-TO-DAY RUNNING OF THE FIRM…

Well there has actually been a lot of lobbying from many quarters about how the regime will apply to NEDs. The regulators have listened and have decided to roll back the requirements so that the full SMR is only applied to the chairman, and certain committee chairs (risk, audit, nominations and remuneration).

‘Standard NEDs’ (the affectionate title given by the regulator to those NEDs who aren’t also committee chairs) will need to go through the same fitness and propriety assessment that committee chairs go through. However, they’ll not need to be registered with the regulators, or subject to some of the other, more stringent requirements of the regime.

SO WHERE DO WE GO FROM HERE?

Some firms we’ve spoken to hadn’t yet begun any preparations. Others had completed large parts of the implementation, and had already been asking the FCA for validation (which they will not give!).

To get on your way to full implementation, best practice would now be to:

• Give serious thought to a number of the difficult policy decisions that need to be made:
  • Do you have the right members on the executive committee?
  • Is the allocation of their responsibilities clear?
• Complete an initial ‘gap analysis’ looking at where you are and what you need to do
  • consider job descriptions, committee terms of reference (TOR), governance structures, etc.
• Create a project plan for implementation
• Start to consider the system changes you might want to make:
  • Is your current approach to training and competence (TC) appropriate?
  • Can your TC provider offer a solution to the responsibilities map?
  • How will you roll out the learning aspects to Senior Mangers Regime, Certification Regime and Conduct Rules staff differently?
  • What is going to be the most valuable way to do that?
• Finally, look back to our article last month on breach reporting; are you set up to succeed in this area?

We’ve identified seven issues the SMR will present your firm. Visit our dedicated SMR page to have a look at these as well as further insights and how we can help.