The Chartered Body Alliance response to DP1/23 – Review of the Senior Managers and Certification Regime (SM&CR)

The Discussion paper provides an excellent summary of the objectives of the SM&CR. In particular it presents a clear reminder that it is an individual accountability regime.

The FCA’s 2019 SM&CR stocktake noted that the majority of firms had had been successful in embedding to their organisations the spirit, not just the letter, of the regime. It identified a number of areas where there was still work to be done in terms of the desired on cultural transformation. Some work to this end has clearly taken place and is noted within the current DP.

However, considering the areas for further improvement regarding the certification process, the 2019 stocktake noted that whilst firms have the right processes and procedures in place, there lacked a consistency of application. A further issue highlighted was whether managers had been deemed as ‘competent’ to conduct such assessments. That review also revealed concerns as to identifying Conduct Rule breaches and an over-reliance on firms’ own internal values statements, rather than the Code itself.

It is our observation that this remains a key gap in the ambitions of the SM&CR. We would welcome the opportunity to discuss with you what we believe is missing from the SM&CR – a vision of a professional culture of conduct and ethics.
As we have previously communicated in our joint and individual feedback, we believe that encouragement of a commitment to developing and maintaining professional standards, such as through professional membership, is a very simple but effective step to preventing and mitigating risk and to improving outcomes for consumers:

  • Reaching the individuals: Principles and rules tend to be written in a language which is not easily understood by the individuals working in the sector directly. They are interpreted by regulation and compliance experts. Therefore programmes of initial and continuing professional development (CPD) help impart the spirit of these rules and regulations to those who must apply them in their day to day. This may be particularly important in instilling a sector Code of Conduct [as opposed to the firm values as highlighted above] – i.e. what is the consistent expectation across the profession as opposed to locally within firm.
  • Supporting cultural transformation: clearly, whether at Senior Manager level or that of line manager [assessing fitness and propriety], it is important to ensure these individuals have the skills and competence to know how to make such assessments. Professional bodies can support the development, maintenance and re-enforcement of the necessary core skills, knowledge attitudes and behaviours for this task.
  • Doing the right thing: within our qualifications and post qualification learning, we not only focus on technical aspects, but also behaviours. Professional qualifications are underpinned by the study of professional ethics. We would therefore argue that members of a professional body should be clear in what is the ‘right thing to do.’ We have mechanisms in place to support and reinforce an individual’s understanding and ability to rehearse and apply their knowledge, whilst providing a source of external verification to support consistency and public confidence in a firms’ own validation process.

We could draw an analogy with the medical profession – while nurses and doctors may work for a wide variety of organisations within both the public and private sector, we would expect their basic professional identity to stem from professional knowledge and ethics fostered by a professional body. Organisations such as hospitals and surgeries will, of course, have systems and controls designed to monitor and influence behaviour, but the standards and culture within which all professionals operate are promoted and managed across the profession.

Given the importance of financial services outcomes to both UK consumers and the wider economy, it makes sense for this three-tier approach – of regulatory standards, firms’ systems and controls and a professional culture nurtured amongst all professional staff.
The advantages of promoting a culture at a professional, rather than firm level include:

  • Professional standards, defined above the level of a firm, can reinforce and flesh out individual conduct rules in a richer and less prescriptive form than formal regulatory guidance
  • Professional standards can set standards of competence for different roles within a firm in a more flexible and granular way than regulation
  • All individuals within a firm have a strong sense of professional standards, encouraging staff at all levels to speak up
  • Professional communities allow for peers to consult and learn from each other, giving perspectives beyond their firm – perhaps giving them greater confidence to confide about problems than they would in a forum set up by a statutory regulator

This three-tier system was set up in the financial advice sector in 2012 through the RDR (Retail Distribution Review), which including mandatory membership of a professional body for retail financial advisers and external checking of continuing professional development as part of a package of measures to improve conduct.

While no system is perfect, the RDR has produced measurable improvements in consumer outcomes, with the FCA offering the following conclusion to a study into suitability of advice in 2017:
‘We consider that these are positive results for the sector. We believe they are a result of the successful adoption of the Retail Distribution Review (RDR) by advisers and reinforced by our previous supervisory and enforcement activities.’

We agree. Our view remains that these positive results have rooted in an enhanced professional culture – one focused on individuals demonstrating integrity and honesty, on having the professional expertise to act with skill and diligence and treating customers fairly – is the culture all stakeholders want to see. We believe we can achieve this with firms, regulators and professional bodies working together.


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