Senior Manager’s regime an increasing burden for Compliance Officers
London, 13th September 2017
The way investment management firms are required to ensure personal accountability exists in their businesses is changing. The Senior Manager Regime (SMR) has completely overhauled the Approved Persons’ Regime (APR). It is no longer a black box and fund managers are increasingly being called upon for greater transparency by both regulators and investors.
A key point on the Financial Conduct Authority’s (FCA) agenda is the extension of the senior managers’ and certification regime to all FCA regulated firms during 2018.
Given the ever changing regulatory environment, the SMR regime is becoming an increasing headache for fund managers. Centaur recently led a panel discussion on SMR, reviewing the biggest hurdles that investment management firms have had to overcome along with opportunities that have arisen from complying with SMR. The main findings from the panel are listed below:
THE DUTY OF RESPONSIBILITY
SMR seeks accountability from individuals, especially the senior management cadre. It imposes an obligation on senior managers to take steps to avoid their firm from breaching requirements.
- A liability does not necessarily arise just because a firm has breached a rule. Typically, for a liability to occur, senior management must fail to take reasonable steps to prevent the breach.
- Duty applies not only to acts but also to omissions. A failure to know what senior managers are responsible for may be enough to constitute a breach.
- Senior managers must combat corporate misconduct and hold to account those that blatantly breach their duty of care and fiduciary responsibilities.
- Specific senior management responsibilities must be mapped to named individuals. This includes specifically challenging double-hatting roles (CEO/CIO) and conflicts of interests.
ADVANTAGES OF IMPLEMENTING THE SENIOR MANAGER REGIME
It must also be considered that there are opportunities for firms that properly embrace SMR:
- Firms develop a culture of accountability at all levels and senior individuals are fully responsible and accountable for clearly defined business activities and material risks.
- Senior managers can derive principles of appropriate conduct towards clients and markets. Additionally, firms understand and can explain their cultures, including what drives their behaviours and actions.
- Processes and systems are put in place to proactively identify risks from behaviours and mitigation techniques are put in place for the long-term benefits of a firm and its clients.
- Firms take steps to proactively identify and address issues when things go wrong, and can demonstrate that they have learned from these issues.
“As firms plan for 2018, there is little doubt that the SMR Regime is high on the radar for fund managers”, says Karen Malone, Founding Partner of Centaur Fund Services. “Although it brings in a new level of bureaucracy for senior managers, the principles behind SMR are solid. As a firm that basis itself on accountability, Centaur supports tools that hold senior managers accountable for their actions. We are on hand to support our clients as they commit to these new regulatory requirements.”