UK: Is It All Getting A Bit Out Of Hand? FCA Consultation Paper 17/40 On Transitioning FCA Firms And Individuals To The Senior Managers And Certification Regime (SMCR)

Last Updated: 30 January 2018
Article by Celyn Armstrong, Craig Neilson, Katharine Harle and Alexandra Doucas

The SMCR for banks has now been in place for almost two years, but only a few months after it was implemented, statutory amendments were made to allow for its extension to virtually all firms. During the second half of 2017, the FCA published its proposals in relation to that extension, and (most recently) in relation to transition to the new regime. An inevitable consequence of this is that the FCA has had to try to adapt a regime designed for use in a sophisticated and well-resourced banking sector, for use by a huge range of firms of very differing size and sophistication. The FCA's recent publication of its proposed transitional provisions (in Consultation Paper 17/40, referred to below as "the CP") illustrate some of the many complexities that are on their way for firms moving into the SMCR.

What type of firm are you?

The FCA has proposed different categories of SMCR firm. Core scope SMCR firms (the majority) will be subject to a "baseline" of requirements. Limited scope core SMCR firms will be subject to rather fewer requirements, and enhanced scope SMCR firms will be subject to significantly more. Banking sector SMCR firms and insurance sector SMCR firms are not intended to form part of any of these three categories, but are covered by industry-specific aspects of the FCA's SMCR regime, frequently in tandem with the PRA. The way in which firms (other than those already subject to it) transition to the SMCR depends on what type of firm they are. That said, the differences between the requirements on each firm type can be overstated, and all firms will have to make significant changes to implement the regime.

The most obvious difference in the transition process is that enhanced scope SMCR firms will need to submit a conversion notification to the FCA, showing which existing approved persons they wish to convert across to corresponding Senior Management Functions (SMFs), subject to the FCA's list of potentially corresponding functions. Such firms will also need to submit a management responsibilities map, and ensure that, on the commencement of the SMCR, there are no gaps in the allocation of responsibilities within their business, such that responsibility for each activity, business area and management function is allocated to a senior manager. If such firms do not submit the required notification, then, on commencement, their senior managers will be deemed to be performing an SMF without approval. 

By contrast, core SMCR firms and limited scope core SMCR firms do not need to submit a notification. The FCA will (subject to exceptions) transfer their existing approved persons automatically to prescribed corresponding SMFs, but the list of SMFs is different depending on whether the firm is a limited scope core or core SMCR firm (and, indeed, there are different lists of SMFs even within those categories, depending on the type of firm). 

All this means that, by the time transitional provisions take effect, firms will need to know what type of SMCR firm they are, in order to know which transitional regime applies to them and what they need to do. There is no suggestion that firms should expect to receive a letter from the FCA telling them which category they fall into. Instead, enhanced scope firms and limited scope firms in particular will need to sit down with the numerical and other criteria proposed in the FCA's consultations and assess whether they meet them. Many of the criteria are determined by reference to data in firms' regulatory returns; given the importance of correct categorisation, firms may wish to do some additional quality assurance on their figures. Should such criteria prove difficult or controversial to apply, there is no prescribed mechanism for resolving such issues. 

In the case of enhanced scope firms, they may have a  sufficiently close supervisory relationship with the FCA that they have a channel for communicating any concerns. For core and limited scope SMCR firms, however, the same close supervisory relationship is unlikely to exist, but the designation is still important. Core scope firms will also need to allocate prescribed responsibilities, but limited scope firms will not, so it will be important for them to know which type of firm they are. Firms have also been told that they should have their statements of responsibilities ready, even if they do not need to submit them to the FCA. Again, this means that they will need to understand who their SMF managers will be after transition and into which SMFs the FCA will move them.

Handbook changes and layout

The text of the FCA's consultation papers in relation to the substance of the extended SMCR and in relation to transitional provisions are admirably clear. Drafting a consultation paper, however, and drafting detailed Handbook rules are rather different exercises, and the draft rules and guidance the FCA has so far provided are not so straightforward. The draft rules appended to the CP, for example, run to in excess of 1,000 pages. The issue is not so much length – most of the appendices contain draft forms, not all of which will apply to every firm or need necessarily be referred to in detail at this stage. The problem is the sheer complexity of navigating the SMCR rules, which are spread over a number of sections of the Handbook.

Two decisions have arguably exacerbated this problem. One is that the FCA decided not to separate out the different rules applicable to different types of SMCR firm by creating, for example, a section containing all the requirements relevant to core SMCR firms. Instead, all the rules appear together, and a series of tables or application provisions indicate which apply to different types of firm. This was clearly a deliberate decision by the FCA, and in some respects an understandable one, but it has the somewhat unfortunate consequence of creating a law of diminishing returns for firms at the lower end of the SMCR scale (limited scope core and core SMCR firms) – they still have to sift through the entire body of relevant rules and guidance, but be ever vigilant to spot the elements of it that actually apply to them, because there are many that do not.

The second decision, probably dictated by the complexity of the exercise the FCA is undertaking, is communicated in the CP, and is the decision to stagger the introduction of the SMCR for insurers, and for all remaining solo-regulated firms. While this is again an understandable decision, it creates additional complication in terms of understanding the Handbook. For a firm wanting to know how the SYSC rules in the Handbook will change, for example, the CP appends no fewer than three different iterations, with reference to a fourth (being the draft appended to the FCA's earlier consultation on the extension of the SMCR). The position in relation to SUP is similar. The reason for this is that the FCA needs one version of SYSC to exist for commencement of the SMCR for insurers, and another to come into being a year or so later for the roll-out to other firms. This leaves aside the rules that need to come into effect slightly in advance of those commencement dates, in order to allow firms to prepare. The outcome is that not only will firms need to sift through a significant amount of drafting that may be irrelevant to them anyway, but they will also need to flip between different versions of the rules appearing at different times. One obvious example is that the Handbook sections defining what the different types of SMCR firm are do not come into force until the commencement of the regime for remaining solo-regulated firms in 2019, but in order to comply with the transitional provisions which will be in force (and which use the definitions), firms will need to refer back to proposed Handbook amendments not yet in force.

The reality is that it will be impractical for most firms to do this themselves and so firms will need a massive amount of help from legal and compliance experts just in order to identify what they are actually required to do, and this may hit the smallest firms hardest in comparison to their size, which does not sit easily with the intended proportionate application of the regime.

Pitfalls of automatic conversion

The alternative for core and limited scope SMCR firms is to read the consultation papers, understand roughly how the new regime is going to work, and then sit back and let the FCA deal with transition by automatically converting existing approved persons across to corresponding SMFs. There are a few problems with this approach.

First, it does not chime with a regulatory approach the purpose of which is to promote individual accountability.

Second, there are some pitfalls to relying solely on automatic conversion. The one the FCA mentions is the role of chairman. Non-executive director (NED) is not an SMF under the SMCR, so existing approvals of any NEDs will lapse on commencement. The exception is where a firm has a NED acting as chair of the governing body, in which case he or she must be converted to the relevant SMF (SMF9), but this will only happen if the firm notifies the FCA. If a firm has an executive chair, the individual will be converted across automatically to the executive director SMF (SMF3), but the SMF9, chair of the governing body SMF, is not a corresponding function, so the executive chair cannot transfer to that role even with a notification. Instead, the firm will need to submit a Form A in order for the director to carry on as chair.

Third, the FCA clearly expects that firms will put in some work in advance in order to get senior managers into the right place for automatic conversion. This means that firms will need either to apply for individuals to be approved to perform an existing controlled function that maps to the SMF they will be performing on commencement (there are rules for applications that have not been approved by commencement), or they will need to apply using the new SMCR forms for individuals to be approved to perform SMFs from commencement. Different rules will apply to applications made under the different regimes, including in relation to regulatory references.

Finally, firms must check the FCA Register within the month following commencement of the SMCR, to make sure that the correct people have been taken across as senior managers into the new regime. 

Identification of certification staff

As with the start of the SMCR for banks, the FCA has decided to delay implementation of the full certification regime for a year following initial commencement of the SMCR as a whole. This means that firms will have a further year before they are required to ensure that no employee performs a significant harm function without being certified as fit and proper to do so. This does not mean, however, that firms can simply park the issue.

First, the conduct rules will apply to certification employees from initial commencement of the SMCR, before the obligation to certify them applies, and firms will need to notify them of this, carry out appropriate training, and implement procedures for assessing whether disciplinary action results from a conduct rule breach and is therefore reportable to the regulator. (The conduct rules will start to apply to other employees at the same time as the main certification rule bites.) This is also the case in relation to individuals who would have been certification employees but for the application of the temporary UK role and emergency appointments rules. This means that firms will need to have identified such individuals, in the UK and (where relevant) overseas, by day one of the SMCR.

Second, rules on regulatory references will start to apply from commencement, and firms will need to seek a reference in relation to existing certification employees whose role changes significantly during the year prior to the implementation of the main certification requirements.

Finally, firms will, of course, need to undertake a significant amount of preparatory work on related employment issues, such as amending relevant employment contracts and considering incorporating a fitness and propriety assessment into existing performance review structures.


The spirit behind the SMCR, its broad character and the FCA's aim to extend it in a proportionate way are hard to fault. The problem with it, in the present context, is that the reality of the regime is in its detail. There is no way that the FCA can implement change on this scale in a way that does not inconvenience firms at all, but the FCA's usual principles of proportionality should aim to target greatest inconvenience at the firms most able to deal with it. This is clearly what it is trying to achieve in its transitional provisions, but the effect of some of its other decisions, on timing and on Handbook layout, arguably have the opposite effect.  

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions