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Successful SMCR Training: Lessons for Asset Managers From the Banking Sector

This blog on the Senior Manager & Certification Regime (SMCR) is written by Liz Hornby, a Principal Learning Consultant based in LEO Learning’s London office. To get going with your SMCR training, here are five key lessons, based on our experience of providing SMCR training to the banking sector.

The five lessons learned for implementing successful SMCR training:

  1. Start now
  2. Begin at the top
  3. Be positive
  4. Think about infrastructure
  5. Think about different training and communication options

In October 2015, the UK government's HM Treasury announced its intention to extend the Senior Managers and Certification Regime (SMCR) to almost all regulated firms, including asset managers. In July, the Financial Conduct Authority (FCA) published their Consultation Paper (CP17/26) and the publication of their final rules is due this summer. The implementation date for the extension is still unclear, but is likely to be mid-2019 at the latest.

The extended regime closely mirrors the current regime for banks and there is much to be learned from their experience. The main lesson is, perhaps, that the SMCR takes time to put in place within firms—it is more than just a compliance exercise. This timetable leaves only a short period between the publication of the final rules and their implementation.

SMCR Training Lesson #1: Start Now

Start now—don’t underestimate the lead time required.

Although the SMCR essentially replaces the Approved Persons Regime, it does much more than that. The SMCR requires a different mindset and considerable changes to corporate governance frameworks, employee assessment, and breach reporting infrastructures, employee training, and, as a consequence, behaviors across the firm.

Behavioral change doesn’t happen overnight. It takes time and reinforcement.

SMCR Training Lesson #2: Begin at the Top

Your communication and training plan will need to touch every area of the firm – from the Board down.

The SMCR broadly introduces three categories of employees: Senior Managers, Certified Persons, and Other Conduct Rule Staff. Each category will require a different communication and training approach.

This SMCR training audience diagram shows the different audiences for the SMCR extension - senior managers, certified persons and other conduct rule staff

Senior Managers
At a Senior Manager level (mostly Board members), there will be significant corporate governance changes. Now is a good time to carry out some groundwork and to map out what is currently in place. Knowing where you are starting from will help you to identify the gaps and the workflows to get you to where you need to be.

Your checklist could include, for example:

  • Organization charts
  • Terms of reference for committees and other governance fora
  • Job descriptions
  • Board competency/culture assessments

Senior Managers will need to understand how the SMCR raises the corporate governance bar. Headline changes include, for example, the preparation and documentation of Statements of Responsibilities and a firm-wide (and potentially group-wide) Responsibility Map.

Senior Managers will also need to have a good understanding of the “reasonable steps” test in the context of their own individual accountability in relation to all aspects of the governance and control environment.

Certified Persons and Other Conduct Rule Staff
Those Certified Persons who were previously Approved Persons will be familiar with the concept of individual accountability to the regulator. Others—and the population does not map across precisely—will be new to this concept.

Certain other aspects of the SMCR will be new to all Certified Persons, whatever their regulatory heritage, namely:

  • Internal certification by the firm, rather than external certification by a regulator
  • Certification as an annual process
  • The new stringent reporting requirements for breaches of the Conduct Rules
  • The new framework for regulatory references
  • The Individual Conduct Rules

Training on the Individual Conduct Rules is mandatory not only for Certified Persons but also for Other Conduct Rule Staff. The Other Conduct Rule Staff category includes all employees, other than Senior Managers and Certified Persons (with the exception of a limited group of Ancillary Staff).

Training on the Individual Conduct Rules must be tailored to the audience and be role-specific.

SMCR Training Lesson #3: Be Positive

Framing is important.

Be aware that many employees will be anxious about the new obligations and, in particular, the consequences of Conduct Rule breaches and regulatory references.

Experience shows that framing is key to the delivery of a successful communication and training strategy in relation to the SMCR and also to sustained behavioral change.

Try to avoid negative messaging and focus on the positive. Emphasize that the SMCR is welcomed by the firm, is good for business, clients, and the industry and, in any event, is in line with the firm’s values and principles and what is currently expected of employees.

Discover more with our definitive guide to the SMCR

SMCR Training Lesson #4: Think About Infrastructure

Implementation of the SMCR means building new infrastructure.

Notable examples are:

  • Changes to the corporate governance framework that must be fully documented and maintained
  • Introduction of a Conduct Rule breach reporting process that must be applied consistently and independently across the firm
  • Changes to recruitment and appraisal processes
  • Introduction of an annual Certification process including annual Fit and Proper checks and the production of physical certificates

The annual Certification process is likely to include the completion of annual mandatory training, tailored to specific roles, beyond the required training on the Individual Conduct Rules themselves. Now is a good time to start thinking about what the mandatory training curricula for different roles should look like.

HR and Compliance will have a key role to play in these new processes.

SMCR Training Lesson #5: Think About Different Training and Communication Options

Good training and communication are central to a successful implementation of the SMCR.
Your strategy is likely to cover several stages:

This SMCR training stages diagram shows the different stages for the SMCR extension

LEO GRC has extensive experience of SMCR training and supporting firms to implement the SMCR. For more information on how we can assist your firm, contact us today.

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