The Senior Managers and Certification Regime, 12 months on

While at this time of year we might look longingly ahead to spring (more so than ever perhaps because of the Pandemic), we ask UKGI’s compliance expert Alastair Haughton, to look back over the last 12 months at the Senior Managers and Certification Regime (SM&CR). For insurance brokers and other solo regulated firms, SM&CR is fast approaching its first anniversary – starting as it did on 9th December 2019.

Let me begin by saying that it has hardly been an easy ride for Senior Managers over the last 12 months. Aside from the business (and personal) impacts of the pandemic (not to mention a hardening market), being an SMF1 (CEO) or the most senior Executive Director (SMF3) during Covid brought with it from the FCA specific accountability for ensuring an adequate process for “following and adhering to government guidance”.

What’s interesting about this, is the FCA leveraging the Regime to ensure unambiguous accountability, which speaks to the heart of SM&CR. From the Statement of Responsibilities to the Conduct Rules, SM&CR is about everyone in the industry stepping up and accepting personal responsibility commensurate with their role. This is a marked change from the old Approved Persons regime where collective responsibility often reigned and could and, in some cases did, lead to an obscuring of personal accountability.

Notably, the Regulator sees SM&CR as allowing it to take a more interventionist approach. It’s clear that the FCA will “hold senior managers accountable for the harms we identify…we therefore expect senior managers not just to take reasonable steps to prevent issues but also to act quickly and effectively to address and remediate when things go wrong.”

Why SM&CR is so important

It’s clear that SM&CR needs to be an active component of a regulated firm’s compliance framework. While a Senior Manager can delegate operational activity, they cannot delegate responsibility and they expressly “cannot disregard an issue or part of the business once it has been delegated [FCA guidance to SMC4]”. As a Senior Manager delegating day to day operational activity, how, then, are you actively exercising this necessary oversight and control?

Part of our work with firms in training and embedding SM&CR has included at times frank conversations about where responsibility should sit for key areas of the business; who’s the right person to hold a Prescribed Responsibility and how individuals will actually exercise oversight, such that they can discharge their Duty of Responsibility effectively. For some businesses, this has meant reallocating responsibilities at Board level, restructuring reporting lines, job descriptions which actually reflect what key individuals within the business do and, crucially, reporting structures which give real oversight.

So, what does real oversight look like?

Well, as a minimum it should include formal and regular reporting to the Senior Manager under whose remit the business area sits. That means not just MI but MI with context and commentary. Reporting should give the individual who has oversight of Appointed Representatives (for example) a clear understanding of the risks these distribution routes present, and evidence that the risks are appropriately managed or early warning if controls are weakened or concerns emerge. Oversight is about moving quickly to correct issues if they arise, but it’s also – and probably more importantly – about acting to prevent problems arising in the first instance. This means you need to have reliable information of sufficient scope to allow you to intervene before controls are breached.

Looking ahead at SM&CR

All in all, it’s been a busy and challenging first year for Senior Managers in the general insurance broking sector. Looking ahead, it is possible in the months to come that the FCA may start to scrutinise how firms have responded to the obligations of the new regime. If you feel that SM&CR is not yet fully embedded in your business, it would be wise to put this on your radar. Remember, there is still a final deadline at the end of March 2021 for training staff in the Individual Conduct Rules, issuing Certificates and reporting Directory data. The original deadline for these activities was, of course, the early part of next month; if you have yet to meet these requirements you really do need to be getting a move on! Even after a year of SM&CR we are still not quite there in terms of full implementation but, nevertheless, the FCA expects that those elements now in force should already be driving the behaviours of regulated firms and the senior individuals who govern and direct them.”

UKGI Limited provides compliance advice and support to general insurance brokers and has joined up with Aviva to supply compliance support at discounted rates to ABC brokers. If you would like to find out more, please contact