SMCR - Senior Managers & Certification Regime

Under the Senior Managers Regime, a firm must ensure that every activity, business area and management function of the firm has a responsible Senior Manager allocated to it, to avoid any gaps in accountability.  Each Senior Manager must have a Statement of Responsibilities (SoR) that clearly defines the scope of their role, setting out their specific responsibilities and areas of accountability.  Firms must allocate certain Prescribed Responsibilities (defined by the regulators) as well as Overall and Additional Responsibilities to Senior Managers.

Individuals holding Executive Senior Manager roles are subject to the Senior Manager Conduct Rules and must take reasonable steps to ensure their area of the business is properly controlled, ensure compliance with regulatory requirements, and to delegate responsibilities only to suitable individuals and to monitor those delegations effectively. They must also disclose appropriately any information of which the FCA or the PRA would reasonably expect notice.

Senior Manager Function (SMF) holders are also subject to the Duty of Responsibility, meaning they can be held personally liable for regulatory breaches within their area of responsibility unless they can demonstrate they took reasonable steps to prevent them. These steps might include maintaining effective governance structures, challenging inappropriate decisions, overseeing delegations of responsibility, and escalating concerns as needed.

Dual-regulated and enhanced solo-regulated firms are required to produce and maintain a Management Responsibilities Map, which sets out the governance and management arrangements in place, and shows how responsibilities are allocated to Senior Managers across the organisation.

Importantly, all SMFs must be pre-approved by the appropriate regulator before they can commence their role. This process may include a formal regulatory interview, particularly for high-impact roles or first-time candidates. Individuals can be rejected if they fail to demonstrate their suitability or understanding of their responsibilities.

We regularly support firms in navigating the following SMCR-related challenges:

• Defining and allocating responsibilities appropriately across Senior Managers: addressing inconsistent or unclear SoRs, identifying overlaps or gaps in Senior Manager responsibilities, and removing ambiguities that undermine clarity of accountability

• Ensuring clear delineation between respective Senior Manager responsibilities: Overlapping responsibilities when multiple SMFs are involved in a process, unclear transitions of responsibility, where it’s difficult to track who is accountable at different stages of an activity or decision, and potential gaps in the chain of accountability, where no individual can clearly be held responsible for certain outcomes or regulatory breaches.

• Understanding what reasonable steps means: the concept of "reasonable steps" is fundamental for Senior Managers but many remain unclear on what taking reasonable steps means in practice and how they should meet this regulatory expectation. Without a consistent understanding and evidence-based approach to demonstrating these steps, SMFs may be exposed to regulatory risk.

• Supporting Non-Executive Directors (NEDs): the way in which the SMCR applies to NEDs varies depending on their specific role and SMF status.  Firms do not always provide appropriate training and support to NEDs, to allow them to understand their responsibilities and meet regulatory expectations.

Assuming an SMF role brings with it significant personal regulatory responsibilities. Firms must ensure that candidates are properly supported through this transition. Key stages where we frequently assist individuals include:

• SMF Interview Preparation: The FCA and PRA may require SMF interviews as part of the SMF application process. This is more common for senior roles in complex firms, for firms where there are known regulatory concerns, or where the individual has not previously held a SMF. A poorly handled interview can result in rejection and damage both the individual’s and the firm’s reputation with the regulator. Yet, many candidates underestimate the preparation required. We help individuals prepare thoroughly, with tailored insights into the questions likely to arise.

• Skills analysis and development plan: as part of the SMF application process firms are requested to provide a skills gap analysis and learning and development plan for the candidate. This should include a gap analysis against the competencies required for the role, any training and development activity undertaken or planned, and state who within the firm is overseeing the development process. Vague or generic submissions are often flagged by regulators as inadequate, and can lead to questions regarding the robustness of firms’ management processes.

• The handover process: The SMCR handover process is a regulatory requirement designed to ensure an effective transition when an SMF holder leaves their role. The firm must take all reasonable steps to make sure that a person taking a Senior Manager role has all the information and materials they could reasonably expect to have to do their job effectively. Regulatory guidance specifies that the information and material should be practical and helpful, including judgement and opinion and an assessment of what issues should be prioritised, not just facts and figures. Therefore, it is typically the outgoing SMF who is responsible for preparing the handover materials.  We have seen firms failing to ensure a robust handover process between the new and departing SMF holders or implementing policies which require unreasonable levels of detail leading to challenges in completing the handover process in a timely manner.

The Certification Regime covers individuals in roles that could cause significant harm to the firm or its clients. These individuals do not require regulator pre-approval, but must be certified annually by the firm as fit and proper to carry out their roles. This has been one of the most challenging aspects of the regime for firms to operate in practice. 

We often work with clients to advise them on managing some of these common challenges:

• Assessing fitness and propriety: Firms often struggle with the subjective nature of fitness and propriety assessments. Fitness and propriety assessments must consider honesty, integrity, competence, and financial soundness. Firms often struggle to apply these standards consistently across departments or functions, and assessments can become overly subjective. The regulators expect a documented, evidence-based process that is embedded in HR and governance systems - not a “tick-box” exercise.

• Integration with performance management frameworks: Some firms find it challenging to integrate fitness and propriety assessments with internal performance management frameworks. This may lead to duplication of effort or inconsistent messaging between HR and compliance teams.

• Keeping pace with organisational change: Employees’ responsibilities often shift due to restructuring, promotions, or evolving business needs. Firms must ensure that fitness and propriety is re-evaluated in response to material role changes, not just during annual reviews. This adds pressure to HR and compliance teams.

• Communication and training:  firms often struggle to provide tailored Conduct Rules training that accurately conveys what the rules mean in context. Generic training programmes may not effectively convey the practical implications of the rules, leading to gaps in understanding and application, and failure to comply with the conduct rules or the firm’s policy requirements.

The Individual Conduct Rules form a central part of the SMCR and apply to almost all employees at regulated firms, not just senior management. These rules aim to set a baseline standard of behaviour and promote a culture of integrity and accountability across the financial services sector. Firms must provide training to ensure employees understand how the rules apply to them. Breaches of Conduct Rules must be recorded and reported to the regulators.

A major challenge is making conduct rule training specific and relevant rather than generic. For example, what “acting with integrity” means for a client advisor is different from what it means for a financial analyst.

It's difficult to ensure the Conduct Rules are truly embedded in company culture and reflected in everyday decision-making, especially in larger firms. This requires strong tone from the top, aligned HR processes, and reinforcement through ongoing communication. In particular when a breach occurs, firms must follow consistent and fair disciplinary procedures as well as meeting regulatory notification requirements.