The tone of the papers suggests that a fundamental reform of the Regime will be unlikely.

By Rob Moulton, David Berman, Jonathan Ritson-Candler, and Charlotte Collins

On 30 March 2023, the PRA and the FCA published a joint Discussion Paper (FCA DP23/3 and PRA DP1/23) seeking feedback on the Senior Managers and Certification Regime (SMCR). In parallel, HM Treasury published a Call for Evidence on the Regime. The Discussion Paper focuses on the operational aspects of the SMCR, whereas the Call for Evidence looks at the legislative aspects. Together, the papers seek comments on the SMCR’s performance, effectiveness, scope, and proportionality. The closing date for responses is 1 June 2023.

The government previously announced a review of the SMCR as part of the Edinburgh Reforms (for more information, please see Latham’s blog post). Although the regulators have conducted smaller reviews relating to the SMCR, this is the first wholesale review of the Regime since it was introduced for banks in 2016. It seems unlikely, however, that a radical overhaul is planned — the approach taken by both papers suggests that any consequent changes will likely be minor adjustments.

Both papers ask a series of very general and broadly framed questions, and therefore read very much as the first step in an information-gathering process. The papers seem to focus on the “success” of the Regime so far, and take as a starting point the fact that the feedback received from industry to date confirms that the SMCR is functioning well.

The regulators and the government consider that the SMCR has driven positive behavioural changes in the financial services sector. This is interesting given that one of the key aims of the regime was to increase individual accountability when things go wrong within a firm, but this has not led to much successful enforcement action.

Often the regulators will use discussion papers to float policy options, but this is not the case here. The papers do not consult on any specific proposals or changes, which might suggest that they do not have any specific amendments in mind at this stage. Both papers do, however, suggest that firms may have views on:

  • Delays in getting senior managers approved (acknowledging that the regulators have faced challenges in meeting timings in recent years, and that this is hopefully improving)
  • Challenges firms are facing when:
    • completing regulatory references
    • submitting Conduct Rule notifications
  • How the SMCR applies to different types of firm
  • The growth in new expectations on senior managers regarding new and emerging risks
  • The frequency with which firms must submit SMCR-related information to the regulator(s)
  • The interaction between the SMCR and other regulatory regimes

Interestingly, the papers also focus on how the SMCR affects the UK’s international competitiveness — a nod to the regulators’ new secondary objective of competitiveness and growth that has been included in the Financial Services and Markets Bill.

Overall, it seems that the review may be less fundamental than firms might have expected. While firms do generally agree with the Regime’s overarching aims, day-to-day compliance can be challenging and firms will doubtless have various aspects of the Regime that they would like improved. It will be interesting to see how the regulators and the government choose to address the feedback they receive.

Latham & Watkins will continue to monitor the progress of this review.