United Kingdom (and EU regulation)

Edinburgh Reforms – SMCR

By Simon Lovegrove (UK) on January 23, 2023 Posted in Senior Managers, United Kingdom

As part of the Edinburgh Reforms the Chancellor of the Exchequer issued a Ministerial Statement which announced that the Government would launch a review of the Senior Managers and Certification Regime (SMCR) in Q1 2023. The SMCR was introduced by The Financial Services (Banking Reform) Act 2013 (which amended the Financial Services and Markets Act 2000) and initially applied to banks and dual authorised investment firms. Later the SMCR was extended to other financial services firms by the Bank of England and Financial Services Act 2016.

The Financial Services and Markets Bill, which is currently making its way through Parliament, extends the scope of the SMCR to central counterparties and central securities depositories. HM Treasury will also be able to apply the regime to credit rating agencies (CRAs) and recognised investment exchanges (RIEs). The changes introduced by the Bill follow the HM Treasury consultation that was launched in July 2021 on the SMCR for financial market infrastructures. In response to this consultation HM Treasury said that it believed “the existing regulatory regimes do not make sufficient provision for the oversight of individual conduct within these entities”. The FCA’s Annual Regulatory Perimeter Report for 2020/21 also recommended that the SMCR be extended to RIEs, CRAs, payment and e-money firms.

At present little is known as to what the review of the SMCR will look like although many in the market believe that a fine tuning of the regime rather than wholesale reform is on the cards. The Ministerial Statement provided that:

The Government will launch a Call for Evidence to look at the legislative framework of the regime, and the FCA and PRA will review the regulatory framework.
The Government’s Call for Evidence will be an information gathering exercise to garner views on the regime’s effectiveness, scope and proportionality, and to seek views on potential improvements and reforms.

As mentioned above both the Call for Evidence and the FCA and PRA review are expected in Q1 2023.

One potential area for discussion could relate to the relative lack of enforcement outcomes against senior managers and certified staff to date.