Overcoming SM&CR challenges

Many will remember saying, “It’s still nearly 2.5 years away, we have plenty of time” when the FCA’s Consultation Paper CP17/25 was issued in July 2017. Now, SM&CR is upon us, it’s only one month out and the ticking of the clock is getting louder and louder! About 47,000 FCA solo-regulated firms are included under this new Regime, and must work hard to deliver on SM&CR.

During discussions with current and prospective users of the EnOC Pro Platform, and many colleagues in the financial services industry, we found that firms are in a wide spectrum of readiness. Most have successfully assessed if they are enhanced, core or limited scope, identified their senior managers, and even allocated their prescribed responsibilities (PRs). However, many are still struggling and here are some of the common topics raised:

1. Writing the Statements of Responsibilities
2. Identifying items that fall under the “Other Responsibilities” category
3. Identifying certification staff
4. Ensuring appropriate and specific training needs for individuals
5. Recording and reporting Conduct Rule breaches
6. Swamped by spreadsheets
7. Preparation for The Directory

Statements of Responsibilities (SoR)

All individuals designated as Senior Managers must have a Statement of Responsibility (SoR). A SoR is a succinct and concise document that sets out clearly their roles and responsibilities. The senior manager is the owner of their own Statement of Responsibility and must be involved in the preparation and completion of their SoR. SoRs must be ready before the deadline.

We found that most senior managers struggle with writing the description of their responsibilities, and writing a SoR that is not a job description. Guidance suggests a maximum of 300 words to describe each responsibility. Those who think it is a job description (which it must not be) find that 300 words is too few, and there are those who find 300 words too many. Senior managers must be economical with words but the SoR must still sufficiently describe what they are responsible for, the basic outline of each of their responsibilities without unnecessary detail, and it must be clear and easy for the regulator and colleagues to understand. It should focus on the ‘what’, not the ‘why’ or the ‘how’.

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EnOC will:

• list the senior managers, and confirm if they have completed their SoR
• retrieve all available relevant data from the system and pre-populate the summary SoR template, leaving only the bespoke sections to be completed, substantially simplifying the process
• enable administrators to extract SoR details in a simple report to act as a reference guide for updating the FCA Connect system
• log all committed changes to the SoR and store a PDF copy of the SoR as evidence

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Other Responsibilities

Senior Managers must also list and describe Other Responsibilities that they carry out as part of their senior management function, not already covered by their Prescribed Responsibilities (PRs). It will usually cover business functions and activities for which they are accountable, for example, high profile projects or initiatives, business transformation programmes or mergers. These must be inserted into the SoR.

Where Other Responsibilities are shared with other individuals, the rationale and the distinction must be made clear.

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EnOC will:

• store the bespoke list of Other Responsibilities as created by the firm
• enable the firm to allocate Other Responsibilities to their senior managers
• automatically insert Other Responsibilities into the SoR template

Certification Staff‍

Firms must identify individuals who will be certification staff. These could be staff who have responsibility for significant business units or who are currently holding the CF30 customer function, and who will be holding the client dealing certification function when SM&CR commences.

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EnOC will:

• list the certification responsibilities as described in the Rules
• alert the firm where certification roles have not yet been allocated to an individual

Ensuring appropriate and specific training needs for individuals‍

Training and evidencing competence has always been important but the emphasis is now on appropriate and specific training that is tailored to the individual. The duties and responsibilities of the individual must be taken into consideration. Firms should define examples of what good culture looks like and measure themselves against that standard. Examples of bad culture will also help individuals avoid or eliminate bad behaviour. Training undertaken must be evidenced, fit and proper declarations must be recorded.

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EnOC will:

• provide every member of staff in the system with direct login access to the EnOC Pro Platform where they can complete the fit and proper questionnaire
• automatically monitor and remind staff that they need to complete the questionnaire again shortly before 12 months have lapsed

Conduct Rule breaches

Firms must have the ability to log and report conduct rule breaches that result in disciplinary actions, like written warnings, salary reductions, bonus clawbacks or bonus reductions (due to the breach), suspensions or dismissals. Logging is important because firms are required to provide details of breaches in regulatory references for at least six years. Even if an individual has left the firm, if a breach comes to light and the firm concludes that disciplinary action, as mentioned above, would have been taken if the individual were still an employee, then the FCA must still be notified and the regulatory reference given to the individual’s current employer must be updated.

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EnOC will:

• enable the firm to log conduct rule breaches ‍

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Swamped by spreadsheets

A very large number of firms said that they were using spreadsheets to manage their SM&CR project. Some due to their affinity with spreadsheets, and others due to the excessive costs and complexity of many SM&CR technology solutions. Whilst it may be possible to use spreadsheets to administer SM&CR, it would quickly descend into a tick-box exercise, very difficult to extract data for reporting, nearly impossible to evidence historical data changes, and the excessive burden of maintaining the spreadsheets would defeat the purpose of the initiative which is for firms to focus on the duties of responsibility and accountability, and embedding good culture within their business.

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EnOC will:

• provide responsibilities map as a feature without charge to all firms in the system, regardless of whether they are enhanced, core or limited scope
• provide a schedule for governance and committees including a feature to create terms of references
• archive and store SM&CR evidence in its document management feature, enabling quick and easy retrieval
• retain logs of important data changes
• removes the cost barrier to entry, with a low fee of only £25 per SMF, £12 per Certified individual and £3 for other individuals
• enable immense scalability, able to serve the very small to the very large businesses alike on the cloud platform, without any hardware or maintenance cost

The Directory‍

The Financial Services Register (FS Register) provides a public record of senior management, its control staff and customer-facing roles for firms regulated by the FCA. But when SM&CR comes into force, the FS Register will contain fewer individuals because only senior managers will be approved by the FCA, and only they will appear on the FS Register.

The Directory will be the new public register for certification roles such as financial advisers, mortgage advisers, traders, portfolio managers and additional directors. The FCA asserts that the information will be more accessible and presented in a user friendly way.

Firms are concerned about the workload required to ask for and to collect the required data, and the time required to upload those data into The Directory.

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EnOC will:

• contain the fields required by The Directory
• emulate The Directory’s user interface to simplify the input of data into The Directory by the firm
• output the requisite file as determined by the FCA for the purpose of bulk-upload into The Directory

The EnOC Pro Platform is designed to close the technology gap, significantly reduce the administration burden, remove complexities, and allow companies to actually focus on the duties of responsibility and accountability. EnOC’s enterprise-level service is available to the smallest of firms to the very large firms at a low price point. Check out the platform here and find out how EnOC can help speed up your SM&CR journey.