Certification under the Senior Managers and Certification Regime


14 Aug 2019

Graeme Stewart


Like most parents, I have saved all the certificates that my two daughters have ever been awarded. From 100-meter swimming to cycle proficiency awards, numerous dance class/school attendance awards and proudest of all, a certificate following the award of a university degree.

Many advisers too will have saved all their certificates of exam success, hard won after hours of study and most likely obtained whilst running a business and/or earning a living against an ever shifting backdrop of stock market and interest rate movements and compliance change.

So, what will advisers do with their certificate to be awarded annually under the SM&CR starting from December 2019?

Will they be framed and hung in the office, or abandoned in drawers to gather dust?
Who knows? (who cares?)

My thoughts are more focused right now on the process that will be followed before an annual certificate can be awarded under the SM&CR, rather than what will eventually be done with them.

I cannot help feeling that the FCA will be thinking the same. 

In my experience, firms who use a Training & Competence (T&C) plan where there is an annual competence assessment built in are in the minority (but that will change).

So, what do I think firms will need to do in order to be able to issue a certificate?

Certification Eligibility

To start, it is worth reminding ourselves that certification covers specific functions that aren’t senior management functions, but these functions can have a significant impact on customers of an advisory firm.

The people who perform these functions will not be authorised by the FCA, instead it is firms themselves that will need to check and confirm (or certify) that these people are suitable to do their job. So that’s:

  • Financial advisers
  • Mortgage advisers
  • Supervisors of financial or mortgage advisers

A senior manager within a business will not require to be certified in that role, but they will need to be awarded a certificate if they undertake a significantly different role within the business. For example, being a financial or mortgage adviser, or a supervisor (of those advisers).

Strangely, advisers who provide advice on Insurance Distribution Directive (IDD) products are not included within the certification process. I will share my thoughts on this later…

Certification Process

Okay, so here are my thoughts and it will be interesting to see how many of you agree with me:
1. The certification process initially won’t come easy to firms

Okay, so I am starting off with something that most people are likely to agree with (but you have to start somewhere!)

Business owners and advisers won’t naturally or immediately see a value in providing a certificate for something that is taken as granted, namely ‘competence’ and a person being ‘fit and proper’ to perform their role. I can hear cries of “Just because there is a new regime in place, doesn’t mean that someone is no longer competent or fit and proper” and I would whole heartedly agree with that. However, I really hope we don’t hear cries of “I’ve been in business 30 years with no complaints” as that would seem to miss the objectives of the SM&CR entirely.

But when faced with signing a piece of paper, knowing that your signature indicates that you are taking personal responsibility for the decision to award a certificate and knowing that the FCA expect you to be taking “all reasonable steps”, many people will suddenly be very focused on the process followed to get to that decision.

My thoughts for an easier life? Plan now!

I belong to the school of thought that says, “fail to prepare, then prepare to fail”. Supervisors should therefore be thinking now about how the certification process is going to be completed within their practice. A process doesn’t have to be embedded into the firm’s T&C scheme (although that would seem like an obvious thing to do).

Thought must be given though to what the process will involve and how will the person’s fit and properness to perform their certified role be measured and evidenced (and in a way to meet FCA expectations), for example:

  • How will honesty, integrity and reputation be measured and evidenced?

  • How will financial soundness be shown?

  • How will the staff member demonstrate competence in understanding the firm’s systems and controls?

  • What Key Performance Indicators will be used?

  • Will the firm use a Job Description to compare the role with actual performance?

2. The certification process will take longer than most people think and cost more

Too obvious?

But having set up the process the natural question arises, how long will this take to complete?
Paradigm Consulting are recommending as a best practice that credit and criminal record checks are carried out each year before a certificate is issued. So, will firms follow that advice? How long is that going to take and what will it cost?

My thoughts for an easier life? Plan now!

Once the process has been agreed upon, it should be relatively straightforward to work back from this to define a timeline and set aside that most precious resource of all, time.

If your T&C scheme says two one-two-one (121) meetings are undertaken each year to review progress under the plan, best plan to make it 3 next year, perhaps using one meeting just to have a dry run at the certification process.
3. The SM&CR will mean more team meetings are conducted

The recent publication of the Senior Managers and Certification Regime Banking Stocktake Report highlighted that many senior managers expressed concern around understanding the meaning of “reasonable steps” but that the FCA did little to provide any practical guidance, with the regulator concluding “It is not possible to provide an exhaustive list that would cover every situation. Neither would it be helpful. Our expectation of senior managers is that they should be doing what they reasonable can to prevent misconduct.”

So, I ask you.. who, holding an SMF function, isn’t going to want to hold more team meetings?
Keeping everyone up to speed as well as rolling out training on the conduct rules, internal systems and controls and generally keeping everyone on the same page and up to speed is a reasonable step that few are going to miss.

My thoughts for an easier life? Plan now!

Get regular dates in the diary now. Make them important meetings, for everyone to attend. Send an invitation, set an agenda, ask for concerns or issues to be raised by all staff ahead of the meeting. As well as the certification process, the SM&CR is all about having an open, transparent and ‘speak out’ culture within the firm, so book out time now, order in some sandwiches and be ready to discuss with all staff, the internal systems and controls you have in place. Finally, don’t forget to minute who was there and what was agreed.

4. The SM&CR will bring back the ‘SMART’ action plan

With transparency and individual accountability at the centre of the SM&CR, who isn’t going to want to set very clear action plans to evidence that reasonable steps are being taken? Any remedial action set, before a certificate can be issued, could therefore be:

Specific: Detailed and accurate
Measurable/evidence seen: The firm must be able to evidence and monitor the agreed remedial action to be taken
Assigned: Who is responsible for completing/monitoring the agreed remedial action?
Result Required: The remedial action must produce evidence that the required outcome has been met
Time frame: The remedial action must be set and achieved within an agreed and appropriate time frame

My thoughts for an easier life? Plan now!

A re-acquaintance with SMART principles will make anyone setting actions have a very clear focus on what must be done, as well as this being transparent to anyone having to act. Of course the FCA will want to see clearly the firm’s ownership of any issues and be satisfied that the firm is taking reasonable steps to deal with them.

5. Advisers who provide advice on IDD business, will be included under the certification regime

So, if you have bought into the ‘Plan Now’ approach, you’ve probably concluded that, like me, why would you want a certification process for mortgage and financial advisers and their supervisors, and have another different and separate approach for advisers involved in IDD business?

Including ALL individuals providing advice under the certification regime isn’t just for best practice, it just seems like a no-brainer to me!

My thoughts for an easier life? Plan now!

Updating your T&C plan to include an annual certification process, which will be the same as for mortgage and financial advisers, shouldn’t be a time-consuming exercise and can only lead to time saving in the future. So plan now and tweak what you need under your existing T&C plan.

6. The SM&CR won’t result in a lot of additional paperwork

All the paperwork (systems and controls, T&C supervision paperwork (1-2-1 documents/ KPI review forms etc.) should already be in place. Sure, we may all need to take more time and place a little more effort in their completion (a reasonable step) and we may want to have them peer reviewed (another easy reasonable step) and we are certainly going to want to keep them safe (a very obvious step) but we shouldn’t need to waste time in inventing any more paperwork.

Oh wait, what about the certificate itself? that will be a new document.

My thoughts for an easier life? Yes, you’ve guessed it!

A good compliance support firm should already have drafted you a certificate and provided you with a template track to run on for the certification process.

The certificate we have drafted for our client firms is attractive enough to be framed and hung…but then who knows what people will do with the certificates, and frankly…