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Embedding the Senior Managers & Certification Regime

In our April blog (“Introducing the 'Four Pillars of SMCR"), we outlined our view of the four core pillars that make up an effective approach to implementing and embedding SMCR: robust foundations, shared transparency, active accountability and continuous improvement.

We firmly believe – and our previous work on SMCR shows – that these pillars provide the structure and focus clients require in order to deliver both the structural and cultural aims of SMCR.

In this blog, we set out further views on why these pillars provide a holistic approach to implementing and embedding SMCR, how they work together to drive the behavioural and cultural change required, and how they create enduring improvements in both accountability and personal conduct.

 

FCA view is aligned

During its 3 June webinar “Preparing for the Senior Managers & Certification Regime”, the FCA emphasised that, whilst enhanced policies and processes were vital in providing the foundation for effective SCMR compliance, firms must deliver the broader cultural changes to fully embed SMCR within their businesses. They challenged firms (again) to demonstrate that they had an appropriate and healthy culture to provide a much lower risk of misconduct.

They noted that the three core components of SMCR – the Senior Managers Regime, the Certification Regime and the Conduct Rules – would together deliver compliance, but that implementing policies and processes for the first two components would only go so far. They cited the Conduct Rules as the ‘bed-rock’ of SMCR and that embedding these in ways-of-working and existing values or behavioural frameworks was key to achieving full compliance. They also referenced that firms that had created stand-alone SMCR processes had been less successful than those who effectively integrated the requirements into existing mechanisms that already support their culture.

This strongly reinforces our four pillars approach.

 

Implementing versus embedding

There is a big difference between implementing SMCR and embedding SMCR; a point reinforced by the FCA.

In the rush to implement the Senior Managers Regime and the Certification Regime (by establishing robust foundations such as mapping and documentation of responsibilities and consequent changes to role profiles and responsibilities), firms must not neglect to consider, plan and begin to deliver the key changes to shape and change the culture and behaviours that will embed the Conduct Rules and the SMCR regime.

Our pillars provide the routemap for both implementing and embedding SMCR.

 

Implementing robust foundations are only the start

Implementing robust foundations is comparatively straightforward for those firms preparing for SMCR in December 2019. For all but the most complex firms, the FCA will map across current Controlled Functions to the new Senior Manager Functions. Whilst firms will need to validate the results, they may not see the need to carry out detailed analysis of roles and accountabilities. Moreover, since fewer Senior Manager Function roles and Prescribed Responsibilities will apply, they may not see the need to fully assess and clarify role profiles, interactions between roles, delegations and governance frameworks. Training and communications will be necessary to raise awareness and understanding, particularly of the Conduct Rules, but this initial up-skilling will often form a new module in the annual round of online “refresher” training. But is that enough?

Caution is needed. The real benefits of SMCR are from real and sustained cultural and behavioural change. This requires embedding the spirit of SMCR in ways-of-working, attitudes and behaviours so that active accountability is the norm, reinforced by shared transparency and continuous improvement.

Implementation is one thing, embedding is quite different.

 

Shared Transparency, Active Accountability and Continuous Improvement are key to embedding

True SMCR compliance is delivered only when leaders take and evidence active accountability and high standards of personal conduct, and all staff live and breathe the Conduct Rules.

Alongside the need to establish robust foundations, we believe that firms must not delay taking steps to begin the cultural and behavioural change that will be complex and will take time. Banks experienced this challenge first hand and are continuing to address the cultural shift to achieve embedding – they implemented SMCR over three years ago.

Three of our pillars directly address this challenge.

 

1. Shared Transparency

"What is measured, gets done", as the saying goes. We believe that creating mechanisms that make transparent the aims, performance, gaps and weaknesses in new behaviours, ways-of-working and delivery of the Conduct Rules will underpin SMCR delivery. We advise that to create shared transparency, firms should:

  • Ensure that there is a clear and robust line-of-sight from actual ways of working, through processes, through controls and in to reporting and governance – are the right things being controlled and overseen?
  • Ensure that there is coverage of direct reports activities (aligned to objectives that have been agreed and responsibilities delegated) and of other delegations – is it clear what has been delegated and how these responsibilities will be monitored?
  • Consider the critical sources of information (whether formal reports, informal updates, or other sources) about delivery and controls performance – what is available to document the delivery of reasonable steps?
  • Ensure that there is frequent dialogue about delivery and controls performance and delivery of Conduct Rules, with effective challenge to what’s delayed, stalled or not working – how are these conversations included in individuals’ one-to-ones? How are delegations properly overseen?
  • Widely share updates on delivery and controls performance upwards and downwards so that evidencing of taking reasonable steps becomes a habit.

Ensuring that there is clear data and information to inform healthy challenge and debate to individual conduct and decision-making will reinforce a culture of doing the right thing and living and breathing active accountability.

 

2. Active Accountability

Firms will have embedded SMCR when they can be confident that accountability for conduct, for delivering good outcomes and living the conduct rules, is core to their culture; i.e. implicit in the way people behave. There is no one-size-fits-all model for what the FCA refers to as a ‘healthy culture’. Each firm's culture will be necessarily unique, but must be fit for purpose to deliver the firm's strategy and the right customer outcomes. But how do you begin to approach this?

We advise that firms:

  • Assess the current purpose, vision and values. Is there an explicit and consistent message about how people should behave? To what extent are the Conduct Rules already embedded at this level? Is the message that comes from you’re the top represented by the experience of people day-to-day in how leaders behave, how peers behave? What does this tell people about what they need to do to fit in, to succeed?
  • How do your control mechanisms either support or contradict what you are trying to achieve culturally?

These steps will help you identify any gaps you have and areas of focus, both in terms of what you are asking of people and also in the reality of how people behave. Where there are gaps, clearly setting out the culture you wish to create is a critical first step to setting priorities.

You can then harness the critical few elements that will really shift the current culture, such as informal leaders (who, regardless of role or grade, live the intended culture); accepted views and beliefs; and patterns of how individuals spend time, make decisions, and carry out their work.

 

3. Continuous Improvement

Changing culture is hard. Managing that change and continually evidencing that SMCR is embedding (and embedded) is hard too. Without oversight and control the hard work can be wasted, and is often the reason why most cultural change initiatives stall and fail.

We advise clients to establish effective oversight and control mechanisms to keep on top of the work and to track results. These mechanisms extend beyond the normal risk and compliance frameworks, and leverage staff engagement surveys, whistleblowing hotlines, breach reporting and a host of informal information sources.

 

Conclusion

By working alongside our expert team of seasoned practitioners, our clients are able to identify their current business culture and employee behaviour, assess the future steps needed to align this to their goals, and monitor their ongoing progress in achieving their aims.

If any of the above speaks to your current business challenges, in regard to SMCR or another issue on your agenda, we'd love to hear from you.

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