The FCA released findings from its 3-year SMCR stocktake today (5 August), based on implementation by the banking industry. The findings highlighted some areas firms where had performed well, and some where there was room for improvement. The good news for pre-implementation SMCR firms, and for banks looking to enhance their SMCR compliance, is that there are practical steps that they can take in light of the findings:
1. For NEDs: Provide additional training and handbooks on their roles. Some NEDs were apparently concerned that too much was expected of them. Exploring the parameters of their roles will assist NEDs themselves, internal governance, and the drive for healthy culture.
2. For all Senior Managers: Provide further training and support on 'reasonable steps.' The feedback was that Senior Managers are still uncertain about the obligation in practice. Scenario-based training, reasonable steps self-assessment checklists and Senior Manager handbooks are some tools that can help Senior Managers understand both the detail and higher-level cultural element of what is expected.
3. For Managers of Certified Persons (and HR/ Compliance/ Legal who oversee certification): Introduce new processes to increase consistency in decisions about certification, which the FCA thought was lacking. This could be a panel that reviews decisions, or an internal guide that highlights issues that will or won't lead to a failure to certify, or explanatory notes to performance assessments.
4. For HR and Compliance: Setting up template regulatory references with guidance notes about how to respond to regulatory reference requests. The FCA thought that the quality and timeliness of responding to regulatory references could be improved. A user guide and process flow for HR/ Compliance can be a good way to deal with this.
5. For all staff (except ancillary staff): Scenario-based conduct rules training. This appears to be the biggest concern for the FCA - they felt staff didn't understand enough what conduct rules breaches looked like in the context of their business and roles. I've seen firms put in place a variety of measures to address this: on-line training with bespoke quizzes, surgery 'drop-in' sessions, and guidance about what will constitute a breach within their particular organisation.
The FCA say they will increase their supervisory focus on the conduct rules - which is an important indicator to all firms, whether pre or post implementation. The FCA will also continue to work to heighten the links between SMCR and firm culture. The more that solid groundwork on the above five areas is put in place to increase active understanding of SMCR in practice, the easier it will be to make the cultural and governance enhancements that the FCA wants to see.
Please note this blog post was written by a Clifford Chance LLP employee. Clifford Chance LLP is the parent company of Clifford Chance Applied Solutions (CCAS). The content within this post does not constitute legal advice.
FCA to focus on firms' implementation of conduct rules