latest Content

The Senior Managers Regime – the start of a journey not the end

SM&CR is far from stick box exercise and senior managers need to address the governance issues and most importantly, be able to demonstrate that should the FCA come calling, says John Moret, principal, MoretoSIPPs  and chairman, Investor in Customers                                                                                                                                 

As I was drafting this article my attention was drawn to the very recent letter from the FCA to the CEOs of all firms classified as financial advisers. The letter is entitled “Portfolio strategy letter for financial advisers”. The letter runs to four pages and ends with the comment “We expect you to consider and discuss this letter with your fellow directors and/or Board and agree what, if any, further actions you should take.” So you have been warned! 

The letter covers seven main areas:

  • Assessing suitability of advice and disclosure 
  • Defined benefit pension transfer advice 
  • Pensions and investment scams
  • Adequate financial resources and professional indemnity insurance
  • Ban on promotion of speculative mini-bonds to retail consumers
  • Senior Managers and Certification Regime (SM&CR)
  • EU withdrawal

All the above are clearly topical and important but I want to focus on the SM&CR item. In the letter the FCA state:  “The (SM&CR) regime sets a new standard of personal conduct for everyone working in financial services. It aims to reduce harm to consumers, strengthen market integrity and encourage the positive transformation of the industry’s culture. We will be assessing compliance with the new SM&CR requirements as part of our ongoing supervisory work.”

It emphasises the need for firm’s senior managers to have a clear understanding of their roles and responsibilities and that staff have the appropriate skills and capabilities to deliver “good customer outcomes”. It also stresses the importance of considering how the new regime might affect a firm’s governance structure.

I am the non-executive chair of a medium-sized advisory firm and in taking on the new SMF9 role the impact on the governance regime was an important consideration for me. As a non-executive it was important for me to have confidence that the firm was not only meeting all the new conduct rules but that if required it could demonstrate that with relevant evidence.

Take for example the new conduct rule four – “you must pay due regard to the interests of customers and treat them fairly”. Now the TCF regime is nothing new and you may well believe that you comply with this new rule – but how can you evidence it? Maintaining a complaints register and reviewing it regularly is where most firms would start but I suggest that under the new regime firms need to go further. 

Remember that in introducing the new regime the objective of SM&CR is to instil a “healthy, customer-centric culture at the heart of every firm.” In the run up to 9 December when SM&CR became effective, there were numerous seminars and training events usually run by compliance or HR professionals which focussed on preparatory work for the new regime including new role and job descriptions, revised organisation charts and training. Often the customer hardly got a mention.

Perhaps it was not a surprise that one adviser was quoted as saying that the new regime was “absolutely meaningless” arguing that it was “an utter waste of time” as all that was required was to tick a box saying “I’m responsible for all the roles I was already responsible for”. However any firm or senior manager that thinks that SM&CR is simply a box ticking exercise is in for a rude awakening.

Senior managers within regulated businesses – large and small – now need to focus on how they are going to ensure that they are meeting the FCA’s objective of a culture that is focussed on the customer or client. That will demand effective leadership, effective governance and effective “people policies”. But it will also require senior managers to think about how they plan to assess and measure the culture of the business.

As chair of an advisory business this was an aspect that particularly concerned me. We decided to opt for an external and independent Customer Experience assessment that involved surveys of staff, senior managers and customers. This obtained feedback through email questionnaires on four principles of a customer experience – understanding customer needs, meeting customer needs, delighting customers and creating loyalty. Within those four principles feedback on sixteen attributes such as product and service quality, quality of communication, treating customers fairly and the quality of the relationship were also obtained.      

The resulting data and analysis was invaluable in providing an honest and independent view of the company’s whole customer experience across the three audiences with internal and external comparisons. It also identified areas where there was scope for improvement within an action plan with opportunities to repeat the process regularly so that progress against the action plan can be monitored. As a non-executive chair I found this assessment and feedback-as a proxy measurement of the culture of the organisation – invaluable and I believe it would be just as helpful for other senior managers. The assessment company we used also provided a benchmark to similar organisations they had assessed, allowing us to take the positives (what we were doing well) alongside the negatives (where we needed to up our game).

Importantly it demonstrates that there is a genuine intention on the part of the business to use the assessment as a tool to understand the culture within the business which is a key part of the FCA’s drive to transform culture across financial services businesses. Whist the challenges to achieve this within large organisations may be greater it is a mistake to believe that smaller businesses don’t need to worry.

I believe as a result of SM&CR there are three simple messages for all senior managers:

  • Think culture – and how you are going to assess it;
  • Think customers (or clients) – and how they can provide valuable feedback on the culture of a business alongside internal metrics;
  • Think confirmation and how you can best provide evidence and demonstrate that the culture of a business is being regularly assessed and improved. 

This is certainly not a tick box exercise. It is also something not to be afraid of. I’d urge all senior managers especially CEOs and chairpersons to think positively about SM&CR and how it can help rather than hinder their business.  The results of an assessment along the lines mentioned above, if used and acted upon appropriately and regularly, should provide much needed comfort. What’s more such an assessment can provide firms and businesses with the keys to unlocking new growth opportunities.

By showing customers that you care and your staff that you are not just paying lip service to SM&CR, senior managers and their businesses have a real opportunity to gain a competitive advantage. As Arthur C Nielsen, often regarded as the founder of modern market research said “The price of light is less than the cost of darkness.”

More Articles Like This