SM&CR could place extra cost on advice firms

SM&CR raises standards of individual's conduct and emphasises the accountability of senior management. It has already been rolled out to other UK finance sectors.

LEBC director of public policy Kay Ingram said the regime will place an extra burden on firms to carry out due diligence when recruiting advisers, however, the changes will not impact individual advisers as much as it will management, who are responsible for meeting the FCA's regulatory requirements.

"A big difference is advisers will no longer be individually registered through the FCA - the firm has to register and certify the individual advisers," she said.

"If we recruit a new adviser, it will be up to us to certify that person as being fit and proper and meeting all the other requirements… We will no longer be able to rely upon the register the FCA produces [but] will need to do that due diligence work ourselves."

She continued: "Even with the FCA register we do some due diligence work already but that will intensify and the responsibility for hiring people and giving them permission to have the regulatory responsibilities will fall on the firm and not on the regulator.  We will have to do more of our own due diligence so there will be extra costs involved."

Mark Greenwood: A final checklist for the SM&CR

FCA executive director or supervision, retail and authorisation Jonathan Davidson (pictured) said the governance of firms should be a key priority for the industry: "We expect firms to embed healthy cultures as this will lead to better outcomes for consumers and markets. It should lead to a healthy and fulfilling environment for employees in which diversity and inclusion is the norm. It should also lead to healthy and sustainable returns for businesses.

"The SM&CR is an important way to ensure that individuals take personal responsibility and it is a catalyst for driving cultural transformation. It is about the principle of stepping up and taking accountability every day from here on, not just about ticking the box on implementation of the regime.  So today is just the starting point for what firms need to do to live the spirit of the regime."

'Strange omission'

Elsewhere, regulatory expert Sturgeon Ventures said the fact the regime did not include appointed representative firms was a "strange omission" and an oversight by the FCA.

"The SM&CR will significantly improve accountability among individuals in the industry, but it needs to apply to appointed representative firms as well if it is to give any kind of consistency across the industry," Sturgeon Ventures managing partner Seonaid Mackenzie said. "Quite why the FCA failed to include appointed representatives - both firms and individuals - is anybody's guess, but it is a strange omission, possibly made because the regulator is busy preparing for Brexit."

Simon Grimmond, compliance director at IFA Partners Wealth Management, said that, by extension, appointed representatives would need to comply with the regime.

"I think if you're bringing out legislation that should apply to everybody but, equally with appointed representatives, there will be people in their parent firm who have that responsibility," he said.

Grimmond said he spoke to his firm's 35 advisers about SM&CR last week, educating them about the new conduct rules they would need to abide by as of today. He said the regime increased the onus on individuals but would not mean a great change in how the firm was already run.

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• Topics
• Regulation
• FCA
• SM&CR
• LEBC
• Partners Wealth Management