The Senior Managers Regime (SMR) is a part of UK financial regulation aimed at increasing personal accountability of senior people in the financial services industry.
After the financial crisis of 2008 an array of legislation was introduced to stabilise the financial industry and to rebuild trust. A key area banking regulators looked at was how risk oversight is discharged and what standards of conduct are expected. The SMR’s predecessor, the Approved Persons Regime, had been regarded as no longer suitable and was therefore replaced with this new regime.
Features of the Senior Managers Regime
Under SMR, any Bank, Building Society, Credit Union, large investment bank or insurance operating in the UK will have to establish clear accountability of its senior staff. The FCA divided this into three top level areas:
- A Statement of Responsibility, which outlines every senior leader’s area of personal responsibility within the firm
- A Firm Responsibility Mapthat provides clarity how people and responsibilities are aligned to each other
- Pre-Approval by the regulator of any person holding roles as a senior manager to ensure suitability of that person including evidence of due diligence done
One of the key messages of the SMR is that while a senior leader may delegate his tasks to staff further down the line, he cannot delegate the accountability for oversight and results of actions taken by staff. Therefore, governance will need to be in place to ensure decisions are taken at the right levels and that evidence is in place every step along the way where and when decision are being taken and how decisions align to business strategy.
In its first extension since coming into effect in 2016, as of March 2017 banks and insurances wishing to hire an individual into a critical function are required to obtain references from regulators about that individual.
The Senior Managers Regime is part of an overall package of three regulations:
- The Senior Managers Regime
- The Certification Regime, which applies at all ‘material risk-takers’ in a firm
- Rules of Conduct, applicable to both senior managers and material risk-takers
While the SMR in its current form only applies to larger firms, the FCA’s timetable outlines the extension to all regulated firms by 2018.
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Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.