Your Company May Be Regulation-Ready, but Are You? Navigating the Senior Managers and Certification Regime

Today’s managers in regulated industries always have to stay one step ahead. They know about upcoming regulations before they become mandatory and prepare their teams for the operational changes necessary for compliance. But while a particular company may have an effective corporate compliance policy, individual managers in the finance and insurance industries may find themselves caught off guard by specific requirements of new agency rules that apply to them directly. This is particularly true in the United Kingdom under the Senior Managers and Certification Regime (SMCR), which is starting to become more heavily enforced by the nation’s financial regulators.

The Senior Managers Regime Directly Impacts Financial and Insurance Professionals

The SMCR is primarily a consumer protection measure aimed at preventing the type of fraud, mismanagement, and corruption that contributed to the worldwide financial crisis that struck in 2008. To make sure professionals in the financial and insurance industries are held accountable to the public they serve, the SMCR applies strict requirements that apply directly to most senior managers in UK banking, as well as any employee who works in a position that could impact a banking or insurance company or its customers.

As a result, professionals in the UK’s financial and insurance industries will need to start thinking carefully about how they carry out their responsibilities and rationalize their business judgments.

Individual and Senior Manager Conduct Rules Under the SMCR

In order to comply with the SMCR on an institutional level, managers must make clear and actionable delegations, performance management, and cross-functional collaboration and accountability systems. This is necessary for determining exactly who is accountable for what in a range of scenarios. But in addition to making sure that their teams and operational responsibilities are ready for stepped-up SMCR enforcement, managers individually need to prepare themselves for strict oversight.

The SMCR includes a set of Individual Conduct Rules. They begin with the requirement that every employee in the UK’s regulated financial services industry must act with integrity. Additionally, all employees must act with proper skill and due care, which may require ongoing training to keep up-to-date on new developments in the industry. Likewise, financial and insurance professionals are obligated to treat customers fairly and pay due care to their interests. And of course, all employees in the UK’s financial services must follow proper standards of market conduct and cooperate with regulatory agencies when they are enforcing the law.

To help achieve its stated goals, the SMCR creates a strict code of conduct for all employees. But it’s even more strict on the top managers in financial institutions. As opposed to the Individual Conduct Rules, the Senior Manager Conduct Rules only apply to those in leadership roles. The Senior Manager Conduct Rules add additional requirements to business leaders. It requires them to ensure that the business they work for is controlled correctly and compliant with the SMCR’s regulatory system.

Boosting Accountability by Encouraging Individual Enforcement

Altogether, the SMCR imposes a great deal of personal responsibility on financial and insurance professionals. This direct individual accountability can weigh heavily on the shoulders of the UK’s financial leaders. However, the purpose of directly regulating financial and insurance professionals is to help encourage individual accountability in banking and insurance decisions. However, by creating a policy that imposes responsibility on individual decision-makers, it will be easier for regulatory bodies to hold people to account if financial markets begin to sour.

The escalation of enforcement actions carried out under the Senior Managers Regime only goes to show how easy it can be to get caught off guard when trying to comply with individual directives under large regulatory regimes.