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SM&CR expands to authorised firms as AR exclusion criticised

  • 09/12/2019
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SM&CR expands to authorised firms as AR exclusion criticised
The Financial Conduct Authority’s (FCA) Senior Managers and Certification Regime (SM&CR) has come into place for directly authorised firms today.


This brings many more mortgage advice firms under the new regime, which is intended to make individuals more accountable for the actions of themselves and their employees.

In October, Association of Mortgage Intermediaries (AMI) chief executive Robert Sinclair told Mortgage Solutions the lack of engagement from small firms was his biggest worry.

“The ones I worry about are the very small firms – one- and two-person bands, small traders, who may not even have noticed they’ve got to do anything. That really scares me,” he said.

To help firms implement the changes, the Society of Mortgage Professionals (SMP) has produced a good practice guide in collaboration with Paradigm Mortgage Services.

This advises how senior managers in the mortgage sector should examine their responsibilities including how they impact customer outcomes.


Key actions

The SMP has outlined four key actions it believes constitute good practice for mortgage firms. They are:

  • Consider customer outcomes first: Senior managers must evaluate the risks presented to clients as a result of their professional conduct and, to the best of their ability, endeavour to protect clients from hard and negative outcomes.
  • Consider how to create the right culture: Senior managers must facilitate best client outcomes by creating a company culture that emphasises the importance of high ethics and professional competence.
  • Clearly represent the firm’s identity: Senior managers must promote clear definition of the firms type and staff roles, so that potential clients can easily understand if the services offered are that which they need, and how best to make use of those services.
  • Keep up to date with skills and training: Senior managers must promote continued professional development within their firms for all members of staff to the benefit of customers, including the recertification of professional adequacy every 12 months.


Society of Mortgage Professionals chairman David Thomas said: “By clearly outlining levels of responsibility, firms can make it easier to identify areas of market abuse and to create a culture that promotes the fair treatment of customers.

“Aligning all financial services in this way will give customers greater confidence that a consistent and regulated system is in place. Ultimately, this will greatly benefit public trust.”


AR exclusion criticised

However, the incoming regulatory regime, which has already been introduced to major banks, building societies, insurers and other financial institutions, does not apply to appointed representatives (ARs).

These firms and advisers will be covered by their network, but their exclusion has been criticised by Sturgeon Ventures as a “strange omission”.

And it also suggested the 12-month window for firms to switch their listing from the current Firm and Approved Persons Directory to the new SM&CR Registry could confuse consumers.

Seonaid Mackenzie, managing partner at Sturgeon, said: “The SM&CR will significantly improve accountability among individuals in the industry, but it needs to apply to appointed representative firms (ARFs) as well, if it is to give any kind of consistency across the industry.

“Quite why the FCA failed to include ARs – both firms and individuals – is anybody’s guess but it is a strange omission, possibly made because the regulator is busy preparing for Brexit.”


Consumer confusion

Other potential impacts from the SM&CR noted by Sturgeon included:

  • Consumers may find it difficult to check whether their financial advisers are fit and proper because there is a 12-month window for companies and individuals to switch their listing from the current Firm and Approved Persons Directory to the new SM&CR Registry. They may also be confused as to why some advisers are ‘certified’ and others are ‘approved’.
  • There will be a burgeoning market for regulatory technology firms to provide online continuing professional development (CPD) platforms that record and declare activity.
  • The positive side of the ARFs not being included is that the senior manager of a Principal Firm with ARFs can prepare the ARFs for direct authorisation and implementation of their own senior managers and Certified Persons procedures, rather like an educational training before direct authorisation by the FCA.



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