Finance Monthly May 2019 Edition

(MLRO), Enhanced firms need to decide whether other SMFs apply to them, e.g. SMF18 (Overall Responsibility) and if so, how many individuals are affected. Easy? Maybe, but maybe not. Add into the mix firms that have been regulated for many years, with individuals involved in areas of the business for which they may not be approved (but in a function that requires approval), and things start to get a bit more complicated. However, the task that was consistently underestimated through the banking implementations involved senior executives scrutinising the detail of their proposed SMFs and responsibilities and reviewing, even renegotiating, their personal Terms & Conditions in return for this (perceived) greater accountability. As a Programme Manager in a major building society said to us: “We’ve only just got sign off on what we proposed to the exec team a year ago”; so be warned! When agreed internally, firms need to inform the regulator which executives are transitioning to the SMF equivalent of their existing Control Functions (CFs) and seek approval for executives that wish to take up roles that aren’t directly mapped. Additionally, Enhanced firms need to submit a Responsibilities Map that shows how the firm’s governance arrangements fit into place. Where the regulated firm is part of a group and services are shared across the group, then they must explain how this arrangement operates in practice. Add into this a Statement of Responsibility for every individual holding an SMF Function, regardless of whether they grandfather across or have to submit a new application, and it becomes clear that setting up and agreeing on the component parts of the Senior Managers Regime in your firm is not a small task. The FCA has learnt lessons from the first tranche of firms’ subject to the new regime and has helped by providing feedback both on Responsibilities Maps and Statements of Responsibility, but even with this type of assistance, nothing ever is straightforward, so expect to plan for the unexpected. The learning from the banking sector is clear - planning and gaining approval for your proposed Senior Manager Regime arrangements takes time. The challenges across the wider financial service sector may vary a little, but the lesson learned by the banks remains true; namely start early and expect things to take longer than planned. Challenge 2 Sorting Out the Certification and Conduct Rules Regimes will also take longer than you plan for. If the message is about getting started early with your Senior Manager community, then it is equally true for the newly introduced Certification Regime. Many firms in the banking sector simply underestimated the amount of time it would take to define and gain agreement on what roles were caught by Certification. When we ask customers how many members of staff are in their Certification Regime, we often got answers like “anything between 10 and 150” or “we’re still deciding”. Depending on the interpretation of the rules, both responses can be equally valid when an organisation comes to the regime for the first time, however, the discussion on the interpretation of the definition of certified roles will eat into your project timeline. And of course, expect a second- time delay to then occur when allocating which Certification Functions applies to each role. Whilst the guidance is clearer for the wider financial services market, deciding what roles are caught by Certification and what roles fall into Conduct Rules should not be underestimated. Once decided, planning the design and delivery of training activities for certification staff will again take time. Not only will there be the need to design, organise and deliver the training both on the new regime and the impact of the newly introduced conduct rules, in order to assist each role holder in clearly understanding the conduct rules in the context of their role, training must be as roles specific as possible. Experience over multiple implementations has taught us that training is often an afterthought on the project plan. If this is the case, then your training will probably be delivered late, leaving you exposed to the risk that staff are not fully aware of their responsibilities under the new regulations. Finally, because the regulator expects competent, not just compliant behaviour from those subject to the Certification Regime, there will also be a debate about what evidence you will need to gather in order to demonstrate competence. If your firm has a fully functioning performance appraisal process, then this may well be a huge step in the right direction. However, if your firm does not have a robust performance appraisal process in place, I suggest the new regulation will be the tipping point to implementing one. Like SMR, the learning is clear that implementing and embedding Certification and Conduct Rules into a firm will take time, focus and resource to do properly. So be prepared. Challenge 3 SM&CR will require a ‘root and branch’ review of some supporting processes. In the early days of your SM&CR project, the main focus will be on defining communities, assigning functions, etc. However, when the implementation team takes the planning to the next level, questions will almost certainly be asked about the efficacy of the firm’s underlying processes, particularly in the 14 www.finance-monthly.com ASK THE EXPERT - SM&CR