Flash SMCR+ View - Edinburgh Reforms

TODAY: The Treasury has published the Call for Evidence, alongside a separate Discussion Paper by the PRA/FCA as indicated back in December 2022 by Jeremy Hunt.

The deadline for responses to the Treasury Call for Evidence is 29 May 2023, and for responses to the PRA/FCA Discussion paper, 1 June 2023. We will be submitting a response on behalf of our clients and welcome any feedback you may have which we can incorporate into this. We will be hosting a call at 1pm on Monday 3rd April to provide our views and to share some suggestions as to how the industry might provide feedback.

Watch the recording here

Both papers are fairly positive about aspects of the current regime and quote previous reviews of the regime. A wholesale reform looks to be off the cards, but there is clearly scope for some amendment and simplification. All told, we think this is a good opportunity to share comments with the regulators on some of the detailed aspects of the SMCR.

Although there is no express reference to non-financial misconduct and D&I we think you can read between the lines that the Government is open to hearing feedback about whether the regime is moving too far from its core purpose of managing risk. Other areas of interest which we’ve engaged with many firms on for a while are also included for comment: we would highlight collective vs individual accountability (again), opportunity to iron out drafting/market inconsistencies with 12 week rule, regulatory references, documentation (SoRs and MRMs).

There are a set of questions asked in both papers which we have set out in the attached.

HM Treasury Call for Evidence

Full marks for the SMCR? The Call for Evidence requests views on the overarching objectives of the SMCR, focussing on whether the SMCR delivers its objectives, and ways in which it could be improved, as well as whether these original objectives remain the right ones for the UK.

Looking abroad… Unsurprisingly given the comments for the Edinburgh Reforms around competitiveness of the UK, the Call for Evidence asks for views on the impact of the SMCR on the UK’s international competitiveness, as well as asking for learning experiences from other major financial centres’ individual
accountability regimes and whether there is scope for greater alignment.

In the weeds… The Call for Evidence asks for commentary about other aspects of the regime – including “compliance requirements for the authorisation of new Senior Managers”, “the breadth of coverage of the Certification Regime” and “aspects of the regime which may appear removed from its core purpose of managing risk”. Many of these points reflect comments that we have heard from clients and reflect Andrew Griffith’s (the Economic Treasury to HMT) comments to the Treasury Select Committee in January 2023 about how far down within an organisation SMCR should go. One point he made that is unlikely to be taken forwards in light of recent events is whether to consider proportionate application of SMCR to smaller banks…..

The PRA and FCA’s Discussion Paper

The PRA and FCA’s Discussion Paper notes that this is the first full review of the SMCR, hence the wide range of questions on the overall impact of the regime in delivering individual accountability.

There’s an international angle here as well, with the regulators asking about the scope of the regime at group and parent level both in the UK and abroad. This may give firms’ an opportunity to share the challenges that this aspect of the regime causes and put forward a case for a more targeted approach for UK regulated firms which are part of a wider international group. The theme of scope can also be seen, with the regulators asking for comments on whether the current proportionality regime works well or whether there should be simplification for smaller firms. Again, this is an opportunity for smaller firms to share any concerns.

In terms of specific questions, the regulators indicate they are “open to suggestions” regarding the delay to authorisations, and ask a specific question about the impact of the 12 week rule on the process. The regulators also ask for views on the effectiveness and scope of the SMF and certification population, regulatory reference regime and conduct rules.

To discuss this further, please contact Penny Miller (Partner) or Andrea Finn (Partner).

We will be following this closely in our SMCR+ View, and we also have our Edinburgh Reform View which will have helpful insights into the matters proposed as they develop over the coming year(...s).