How to establish SM&CR compliance

The Senior Managers and Certification Regime (SM&CR) is a regulatory framework designed by the Financial Conduct Authority (FCA) to improve culture, effective governance, and individual accountability within financial services firms. To establish compliance, you must clearly define the responsibilities of your senior leaders and implement a robust "fitness and propriety" assessment for staff members whose roles could significantly impact customers or the firm's integrity.

Understanding the Three Pillars of SM&CR

Before you begin mapping out roles, it is helpful to understand that SM&CR is built on three main components:

• The Senior Managers Regime: Focuses on the most senior people in the business. They must be approved by the FCA and have a clear "Statement of Responsibilities."
• The Certification Regime: Applies to staff who aren't senior managers but whose roles could cause "significant harm" to the firm or its customers (e.g., financial advisers). You, as the employer, must certify these individuals as fit and proper every year.
• The Conduct Rules: Basic standards of good personal conduct that apply to almost every employee in your firm.

Step 1: Identify Your Firm Type

The level of detail required for SM&CR depends on your firm's size and complexity. Most small businesses or solo ventures starting out will fall into the "Limited Scope" or "Core" categories. You should check the FCA website to confirm your tier, as "Enhanced" firms (usually very large banks or investment firms) have much stricter requirements.

Step 2: Map Out Senior Management Responsibilities

If you are a sole trader or a small partnership, the "Senior Manager" might just be you. However, the FCA requires clarity on who is accountable for what. You must create a Statement of Responsibilities (SoR) for each senior manager.

This is a single document that clearly sets out the areas of the business the person is responsible for. The goal is simple: if something goes wrong, the FCA needs to know exactly which individual was responsible for overseeing that area.

Step 3: Identify and Certify Staff

The Certification Regime is your responsibility to manage internally; the FCA does not approve these individuals directly. You must identify "Certification Functions"—roles that aren't senior management but could still cause harm. Common examples include:

• Material Risk Takers.
• Anyone supervising a certified person.
• Financial advisers or mortgage advisers.

For these staff members, you must perform a "Fit and Proper" test. This involves checking their:

1. Honesty, integrity, and reputation: Usually via criminal record checks and regulatory references.
2. Competence and capability: Ensuring they have the right qualifications and training.
3. Financial soundness: Checking for any history of bankruptcy or severe debt issues.

Tip: You must issue a certificate to these employees at least once a year to confirm they remain fit and proper for their role.

Step 4: Implement the Conduct Rules

The Conduct Rules are the "bread and butter" of SM&CR. You must train all relevant staff on these rules so they understand how to apply them to their daily work. For most firms, the Individual Conduct Rules are:

Rule Number	Rule Description
Rule 1	You must act with integrity.
Rule 2	You must act with due skill, care, and diligence.
Rule 3	You must be open and cooperative with the FCA, the PRA, and other regulators.
Rule 4	You must pay due regard to the interests of customers and treat them fairly.
Rule 5	You must observe proper standards of market conduct.

Best Practices for SM&CR Compliance

• Keep detailed records: If the FCA audits you, they will want to see your Statements of Responsibility, training logs for Conduct Rules, and your annual certification records.
• Keep it simple: For a small firm, your mapping doesn't need to be 100 pages long. It just needs to be accurate and reflect how your business actually runs.
• Update regularly: If you hire a new manager or change how your business is structured, update your Statements of Responsibility immediately. Compliance is an ongoing process, not a "one-and-done" task.
• Use a "Fit and Proper" checklist: Create a standardised form for your annual staff reviews to ensure you are asking the same questions and checking the same criteria for every certified person.