Clifford Chance

A joint discussion paper by the FCA and PRA (DP23/3:DP1/23) was published on 30 March 2023, seeking feedback from stakeholders on a number of aspects of the Senior Managers and Certification Regime (SM&CR). HM Treasury also separately published a Call for Evidence on the same date to review the legislative framework of the regime. Together, the papers represent the first holistic review of the SM&CR.

The SM&CR is an individual accountability regime introduced following the global financial crisis. It applies to thousands of dual-regulated life and general insurers, Lloyd's and London Market firms and solo-regulated insurance intermediaries, as well as individuals at all such firms in the UK. However, concerns about the regime have been raised with both government and the financial services regulators.

Issues reportedly informally raised with government include:

• The breadth of coverage of the Certification Regime;
• The compliance requirements for authorising new Senior Managers;
• Differing levels of scrutiny applied to different firms; and
• The interaction of the SM&CR with other regulatory regimes. 

Issues reportedly raised with the PRA and FCA include:

• Challenges in completing regulatory references;
• Expectations on Senior Managers in respect of new and emerging risks. This is of course very topical given the Bank of England, FCA and PRA joint discussion paper (DP22/4:DP5/22) on artificial intelligence and machine learning in financial services and the wider discussions currently making daily headlines in mainstream media on this subject; and
• The frequency of submitting SM&CR-related information. 

Delays in processing Senior Manager approvals have also been raised with both HM Treasury and the regulators.

The review of the SM&CR does not aim to fundamentally overhaul the regime, although both papers ask questions about the suitability of its core objectives. The focus of the review by the PRA and FCA is threefold: operational efficiency (how can the SMF approvals process be improved? does the 12-week rule sufficiently help firms?), proportionate regulation (is the SM&CR applied proportionately to firms and individuals?) and trust and reputation and competition (to what extent has the regime improved safety and soundness? is the scope of the SM&CR appropriate?).

From HM Treasury's perspective, the review must take into account wider government aims to drive economic growth and make the UK an attractive location for financial services. For example, the Call for Evidence specifically seeks feedback on how the UK regime compares with other regimes and what might deter individuals from locating to the UK or taking up Senior Manager positions. The discussion paper includes similar questions and expressly states that the regulators will conduct their review in the context of the new secondary objective of competitiveness and growth that is set out in the Financial Services and Markets Bill. The challenge for HM Treasury and the regulators will be balancing the requirements of a regime which was borne out of the desire to avoid a repeat of the Global Financial Crisis, against putting the UK at a competitive disadvantage by deterring individuals from taking-on Senior Manager roles and/or making it difficult for firms to find suitable candidates to take-up those positions.

Both the discussion paper and Call for Evidence close to responses on Thursday 1 June 2023. Given that the SM&CR has been in-force for more than seven years for some firms and was stress-tested by the pandemic, the expectation is that stakeholders will be able to give feedback that demonstrates real-world policy and process issues with the regime.

If you require assistance with providing feedback, please contact the author Emma Eaton, or your usual Clifford Chance contact.