In its response to the Regulator’s proposed review of the SM&CR and the Treasury’s call for evidence, PIMFA points out that the regime has played a useful role in improving conduct, governance and individual responsibility within the financial services industry since its introduction in 2016, providing a common framework across the sector.
Given the costs involved with its implementation, the relative effectiveness of the policy and the the absence of any alternative, PIMFA is therefore cautioning against wholesale reform of the regime. Of more benefit would be for the introduction of a thematic review to examine where some targeted changes and amendments could improve the overall functioning of the regime and remedy operational issues that have impacted some firms.
Whilst PIMFA is supportive of the Edinburgh Reforms of which this review is a part, the government and the regulator need to balance their desire for change against the need for it as it presents itself. PIMFA shares the view that our exit from the European Union presents significant opportunities to create a bespoke rulebook for UK firms, but changes need to be proportionate to the benefit they will confer and give due consideration to the impact on firms as a whole. Firms have expended significant resources implementing these regulations, many of which, as in the case of the SM&CR, have been in place for less than a decade.
The principal issue with SM&CR is not the regime itself, but how it operates, and problems associated with making it work in practice. Most firms are concerned only with delays in the authorisation/approval process, which are causing significant business planning issues for them.
The intention to extend the scope of the regime is, considering the current delays in processing authorisations and senior manager approvals, also of concern, and we would urge the FCA to resolve existing problems first and ensure it has the available staff to deal with an expanded regime and the additional applications that will be submitted as a result.
Alexandra Roberts, Head of Regulation at PIMFA, commented: “The Edinburgh Reforms represent a significant opportunity to reform regulations around financial services in a way that takes a more UK-centric approach, but we would urge policymakers not to throw the baby out with the bathwater in their reforming zeal.
“Many of the regulations that have come into effect, have only done so in the last decade and took time and significant resources to implement. The only real complaint with the SM&CR is the time it takes to process authorisations and senior manager approvals. The scope of the Certification Regime being too broad and shifting to encompass non-financial risks and capturing too many individuals.
“There have been no thematic reviews to assess how well the industry is applying the SM&CR since its introduction in 2016, leaving the financial services sector without the evidence needed to determine if delivery of the regime has achieved its core objectives.
“A thematic review of the SM&CR would provide a better understanding of how the regime has been working and would provide useful insight on where possible improvements can be made. It could also clarify the interaction between the SM&CR and the new Consumer Duty due to be implemented in July.”
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