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Without credible strategy, advice firms could fall foul of Senior Managers regime, warns consultant

  • 05/10/2017
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Without credible strategy, advice firms could fall foul of Senior Managers regime, warns consultant
At the Legal and General Mortgage Club Live conference in London a compliance consultant warned mortgage advisers that the Senior Managers and Certification Regime (SMCR) will require far higher standards of accountability than the current Approved Persons standards.

The SM&CR is a bid to revolutionise banking culture post-credit crisis and to document corporate accountability on key individuals in a firm, who then disclose their responsibilities in an agreed list.

Speaking at the event held at the Royal Society of Medicine, Dhanush Lodhia, senior consultant at Huntswood, said now is the time to assess your firm’s governance structures, adding that some firms are at greater risk than others with some already struggling to apply the conduct implications and address the HR challenge.

He said brokers should be asking themselves:

• Is your firm’s strategy clear and simple?
• How robust is your firm’s governance? Can you document it?
• Are managers comfortable with their current level of responsibility?
• How able is the HR department to assess fitness and propriety?


Series of strategies

Lodhia said mortgage brokers needed to adopt a series of strategies including: a “consistent approach” to evidencing suitable client recommendations; the firm’s approach to risk; and tailored staff training to evidence “fit and properness”.

The SM&CR was rolled out in March 2017 in banks, building societies and Prudential Regulation Authority regulated investment firms and replaced the Approved Persons Regime.

In August, the Financial Conduct Authority (FCA) confirmed the scheme would be extended to cover larger financial intermediaries and despite delays could hit the statute books by mid-2018.

The regulator is attempting to overcome a legal hurdle to include network members as well as directly-authorised advisers.

According to law firm Cleveland & Co, the number of managers that will be held personally responsible for misconduct will increase from 3,000 in 2016 to 72,000 in 2018 after the regime change.


The FCA proposes three parts to the Senior Managers Regime:

1. Five conduct rules that will apply to all financial services staff at FCA authorised firms. This simple set of rules means that individuals must act with integrity, act with due care, skill and diligence, be open and cooperative with regulators, pay due regard to customer interests and treat them fairly, and observe proper standards of market conduct.

2. The responsibilities of Senior Managers will be clearly set out and, should something in their area of responsibility go wrong, they can be personally held to account. The Senior Managers will be approved by the FCA and appear on the FCA Register.

3. Under the Certification Regime, firms will certify individuals for their fitness, skill and propriety at least once a year, if they are not covered by the Senior Managers Regime but their jobs significantly impact customers or firms.

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