The Senior Managers & Certification Regime (SM&CR) came into effect on 9th December 2019 to replace the Financial Conduct Authority’s (FCA’s) ‘authorised persons’ regime affecting all dealers offering F&I services.
The SM&CR represents a new level of personal accountability for nominated senior business leaders in dealers across the UK. It carries with it significant responsibility and should never be seen as a ‘tick box’ exercise.
As far as the FCA is concerned, the SM&CR means they know where the buck stops and they can act on shortcomings. The SM&CR may have been new to dealers but it has been in place for banks since March 7, 2016 and to financial institutions regulated by both the FCA and Prudential Regulation Authority (PRA) since December 2018. More pertinently, dealers need to recognise that the FCA has already demonstrated that they are prepared to take action against individuals for business failures.
In short, everyone involved with F&I must comply with SM&CR standards of conduct. Here is what he FCA expects:
“You must act with integrity, you must act with due care, skill and diligence, you must be open and cooperative with regulators, you must treat customers fairly and you must observe proper standards of market conduct” to quote the FCA on the subject.
At a high level, senior managers must recognise that they are responsible for making sure the business is being well controlled has effective delegation procedures in place and discloses any information that regulators would expect to receive.
So is your business fully on SM&CR message?
The following notes are simply a high-level summary, but we hope to provide a flavour of what processes and controls need to be in place; however, the greatest change for many may be cultural. Do the needs of your customers dictate everything your business does at every level, every time without exception? If not, or if you can’t be sure, then this is likely to be the greatest challenge to SM&CR compliance.
Compliance with SM&CR does not have a quick fix option. Steps required are not insignificant and dealers will need to have established the required written processes and controls and staff training to evidence compliance.
The critical focus in a dealership will have been identifying who (it could be more than one person) is/are responsible for undertaking the senior manager function (SMF). It has to be someone very senior, who has the authority to make positive changes happen.
Legally, each senior manager must have a statement of responsibility that sets out their role and responsibilities within the company with respect to the business’ F&I activities.
Under certification, dealers must be able to demonstrate that people in senior roles responsible for F&I below SMF level; F&I managers, business managers, sales leaders. DPs etc. are fit and proper to do their job. This has to be done at least once a year. As well as an annual assessment, evidence to support their ‘fit and proper’ status is essential.
Finally, SM&CR also brings with it conduct standards, which all dealer staff involved with F&I must comply. Dealerships need to identify members of staff responsible for finance, detailing what they should be accountable for and introducing annual checks to make sure staff are properly trained for the roles they do. Under the SM&CR, all this needs to be recorded and evidenced.
In our experience, fulfilling all of this is neither quick to set-up or maintain (18 months ahead of the December 9th date, a legal firm was suggesting that dealers might be leaving their preparation too late!)
The cost of failure
The first case brought by the FCA and Prudential Regulation Authority (PRA) under the SM&CR in May 2018 saw when Barclays’ chief executive James Staley was fined more than £600,000. Custodial sentences for serious breaches are also an option.
Time for additional action?
Time to look again at your state of readiness? We can help email us at info@i-comply-online.co.uk
