The Senior Managers & Certification Regime that has come into effect is a positive step for the financial services industry – but its failure to include Appointed Representative Firms (ARFs) and their individuals is an oversight, according to regulatory incubator Sturgeon Ventures.
SM&CR is principally about changing the way financial services businesses operate. The SM&CR replaces the Approved Persons Regime and will now apply to all FCA solo-regulated firms as well as banks and insurance companies who joined the regime earlier. It aims to improve governance within financial services firms by making individuals more accountable from senior management to certified individuals to a wider group of employees than the Approved Persons Regime, including making them responsible for their own, ethics, culture and continuing professional development (CPD) activities monitored by the Firm and not the Regulator.
Seonaid Mackenzie, Managing Partner at Sturgeon, commented: “The SM&CR will significantly improve accountability among individuals in the industry, but it needs to apply to 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.”
The new Certification Regime requires firms to assess the fitness and proprietary of any staff that could cause significant harm to the firm or its customers; and apply the Conduct Rules, which are a two-tier system of high level standards and behaviours that are expected by all employees working in financial services. The Senior Management of a Firm will also be accountable for persons within the ARF who will remain approved persons for the time being under the APER framework.
Sturgeon sees other impacts from the SM&CR, including:
• 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 (‘RegTech’) firms to provide online CPD platforms that record and declare activity
• The positive side of the ARFs not being included is that the SMF of a Principal Firm with ARFs can prepare the ARFs for direct authorisation and implementation of their own SMFs and Certified Persons procedures, rather like an educational training before direct authorisation by the FCA.
Sturgeon also announced that it will become the first regulatory incubation company to become a Corporate Supporter Firm of the Chartered Institute for Securities & Investment. Sturgeon has joined the CISI to promote professionalism, knowledge, skills and behaviour amongst all their individuals and maintain an electronic and auditable Continuous Professional Development among Senior Management and Certified Individuals, its ARFs and approved persons for whom Sturgeon acts as their Principal. Holding an individual charter demonstrates to clients, colleagues a commitment to high levels of skills and behaviour. Seonaid Mackenzie earlier this year became a Chartered Fellow of the Institute.
With the new SM&CR Directory, Sturgeon sees the benefit of being part of the memberships which will be listed as part of the new Directory. As part of its policy to promote education and training, Sturgeon has also become involved in the CISI’s education programme for schools, universities and women. Sturgeon was one of the first signatories to HM Treasury’s Women in Finance Charter and has campaigned for the government to initiate tax breaks for those start-up companies in which women account for at least half of senior management.
Sturgeon Ventures, based in South West London, is an award winning ‘Regulatory Incubator’, also known as Regulatory Hosting, and provides investment management, corporate finance advice, compliance services and support and eventually direct authorisation support to start-up financial services businesses until they can be directly regulated in their own right by the FCA. The service has been particularly in demand since the global financial crisis, with many individuals leaving large institutions to set up their own operations.