The Senior Managers Regime (SMR) will be rolled out to mortgage advice firms in 2018, raising concerns over how small directly authorised (DA) mortgage broker firms will cope with the compliance costs.
The regime was implemented in the banking and building society sector in March last year. Under the rules, the Financial Conduct Authority (FCA) aims to increase the accountability of managers for wrongdoing in areas of the business they are responsible for. In its paper, detailing the rules, the FCA said individual accountability ‘should focus minds, drive up standards, and make firms easier to run and to supervise’.
Louisa Sedgewick, director of sales, mortgages, Vida Homeloans, has raised concerns that the regime does not take into account the size and turnover of a firm. She said it may not be feasible for a DA one-man-band to employ a person to provide additional oversight and questioned whether this would cause a move towards the appointed representative model, or drive smaller DAs to merge with larger DAs for compliance cover.
She said: “The responsibility of senior managers within any firm will be clarified and indeed the potential punishment for mis-management far more severe now there is no ambiguity.
“The overall cost implication for adhering to the regime could be vast through additional recruitment and those who will be taking greater responsibility demanding higher salaries.”
However, Robert Sinclair, chief executive of the Association of Mortgage Intermedaries, said small and medium-sized broker firms should not be anxious about the regime, as nothing had changed in any rules. He said SMR forces firms to look at the existing rules and portion out responsibility to these roles.
He said: “The person who owns his own company, has already agreed and signed on the dotted line to say he is responsible for his staff.”
A spokesperson from the FCA said: “Our aim is to introduce the [regime] to all firms by embedding and enhancing a culture of accountability and improving standards of conduct across the industry. In doing so, it is crucial that we take account of the different size, types and complexity of firms and we will be consulting widely during Q2 of this year to seek feedback on our proposals. Our determination is to achieve consistent principles across financial services, but in a clear, simple and proportionate way.”
Companies with a large payroll face the biggest rise in costs, as they deal with the complex bureaucracy of reporting lines, employee checks and higher administration costs.
Firms will be responsible for the annual validation of employees, involving financial checks to make sure no litigation claims have been made against them, while those directly affected by the regime will face annual criminal checks. Those giving advice will also need to be certified.
Sinclair said: “The regime means firms will need to properly vet people on the way in to their company. They must be clear on who they are employing. It will focus the minds of those responsible heading up networks because they will have to certify them.”
AMI said it will be the trade association’s biggest project next year to help brokers prepare for the responsibilities required to be satisfied under the scheme.
The FCA will launch a consultation into its proposed rules for all firms authorised under the Financial Services and Markets Act quarter two.
