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The Senior Manager and Certification Regime (SM&CR) for me represents a paradigm shift in UK financial services regulation and accountability. I agree with the Tolkien “One Ring“ analogy drawn by Michael Rasmussen, Economist & Pundit, in which, instead of One Ring, he describes the SM&CR as:
“One [regulation] to rule them all, one [regulation] to find them [risk, compliance, control], one [regulation] to bring them all, and in the [enforcement] bind them.”
We should be under no illusion, the journey ahead is going to be challenging for firms and advisory firms in particular.
The SM&CR is being extended to intermediaries following the introduction of the Insurance Distribution Directive, and is the governing regulation of all regulation. It enforces senior manager/executive accountability if there is negligence or lack of due diligence in managing risk, conduct, compliance, and controls. There is also the potential of individuals going to jail or being personally fined should they not adhere to requirements (and note, their organisation cannot reimburse them).
This is significant, it is the paradigm shift I referenced earlier, from responsibility to accountability. You might think that this difference seems a subtle play on words, but it is very real with accountability meaning ownership. Being accountable in terms of SM&CR, means that an individual, in this case, a senior manager, is ultimately answerable for the actions of his or her organisation and if the organisation is not diligent, they are personally liable.
SM&CR will be time consuming, planning and prioritisation of activity is essential, as is colleague communication and training. Taking advice if you are unsure is sensible and this is available in spades from the Chartered Insurance Institute (CII) and a number of specialist support firms.
It’s understandable that Senior Managers may be feeling apprehensive of the accountability they are now burdened with, especially as they have a day job to do and businesses to run. Accountability requires responsibility to ensure that risk, compliance, and controls are appropriately managed throughout the organisation and that their colleagues are fit and proper, aware of their roles, responsibilities and limits of authority, and are aware of and addressing their professional development needs.
As Michael Rasmussen also highlighted, when Frodo himself was concerned with the burden of the One Ring that was laid upon him, he said....
“I wish the ring had never come to me, I wish none of this had happened” but as Gandalf replied:
“So do all who live to see such times but that is not for them to decide, all you have to decide is what to do with the [accountability] that is given to you.”
Accountability is there and it’s not going away. It is up to Senior Managers to accept this accountability and move forward in ensuring that their firm is properly governed, and that risk, compliance and conduct is managed.
I express my thanks to CII and threesixty services for their support and involvement in providing advisers with information and support. In our “fellowship” we have developed a Masterclass to remind you of the importance of the IDD and how to prepare for the SM&CR.