Chris Davies explains why HR is now a key compliance function which plays a central role in managing systems, controls and processes that keep advisers on the right side of SM&CR
With the new SM&CR accountability regulation upon us, what is apparent is that retail investment adviser firms, no matter how small they are, need to ensure they have HR development (HRD) strategies and resources in place.
We recently ran our SM&CR CPD-accredited workshops for Intelliflo regional users groups across the UK and the feedback is that firms really need help and support around HRD and its new compliance functionality given the SM&CR.
HRD is now a compliance function and plays a central role in managing systems, controls and processes that underpin long term compliance with this all-encompassing regime.
So, a focus for firms on staff lifecycle processes can help them understand both what they need to do and how to implement HRD strategy. This can be done by focusing on tracking processes across:
Employ Core HR Processes
Record keeping and Technology This needs to be robust with systems and processes to track staff journey through each of the 3 tiers of the regime. Evidence-based practice is now king, if it isn't written down it didn't happen.
Training and competence programmes Need to filter who is in and out i.e. acknowledge the regulator's unique ancillary staff strategy which showcases who is out. T&C should cover all conduct rule requirements which (in our opinion) are the foundation to this regime.
Fitness and Propriety It is good practice for firms to be registered with the disclosure and baring service or if you are over Hadrian's wall; Disclosure Scotland, to ensure criminal checking is robust, plus adding qualification and personal characteristics checking to ensure the hard and soft skills are assessed.
Senior Managers Regime and Senior Manager Functions This involves ensuring you have six-year referencing for all new Senior management hires and ensures firms keep an audit trail of actions taken if a breach of the conduct rules occurs i.e. Reasonable steps plus trace any disciplinary processes, outcome and actions, all fitness and propriety assessments and any training delivered around the regime.
If a breach were to occur it is HR's responsibility to demonstrate that appropriate record-keeping processes and tools are in place to flag any misconduct. Information needs to be shared in a timely manner with the team such as audit and compliance (whether in-house or outsourced) and the regulator. So, it's an evidence-based practice that needs to be adopted which currently is sketchy across the industry. Technology can help with this In offering:
- Mapping for roles and responsibilities
- Guides and evidence for Statements of Responsibilities and Prescribed Responsibilities
- Responsibility Handover guides and reasonable steps and conduct rule log
- Aligning performance management and development with the business plan
- Ensuring all relevant staff have the right training and competence standards
- All legal requirements (e.g. disciplinary/exit are covered)
Certification functions - CFs Certification Functions assessment process Here you really should know who is in and who is out, design an annual programme, identify conduct concerns, training and competency aligns with conduct rules, breaches logged and acted upon and have the legal and business process in place for those leaving CFs.
Conduct Rules - Conduct Rule assessment process Clear on-going procedures and monitoring is required across HR strategy to ensure the conduct rules are understood by all and apply to their roles. Breach logs need to be monitored and acted upon with senior managers knowing the three reasonable steps rules.
How can firms cope with HRD requirements?
RegTech can also help define the firm's culture by:
- Auditing holistically across the business operations and systems to ensure staff Competence (Knowledge) and Conduct (Behaviour) are constructive and aligned
- Risk management and following the FCA five conduct risk questions:
- Method for identifying risk
- Staff accountability for risk management
- Tools to track, monitor and manage risk
- Board oversite strategy
- Areas identified and managed that could undermine the above
- Employing a dedicated HRD heat mapped dashboard to showcase staff competence and development strengths, weaknesses and blind spots
Chris Davies is founder and director of Model Office
FCA in High Court victory
It’s The Pro Adviser Podcast
14 upheld FOS decisions
'Stopped' 24 firms in sector
Should reduce reporting cost burden
Five-steps to outsourcing happiness
Likelihood of 30 January rate cut rises
New client suitability reports coming
At Parmenion for six years