Individual Accountability: Creating the right culture for financial services firms

Since the Senior Managers and Certificate Regime (SMCR) replaced the Financial Conduct Authority’s (FCA) Approved Persons Scheme there has been more focus on individual accountability. But what does this actually mean for firms and their Senior Managers?

What does individual accountability mean?

Under SMCR the onus is on the Senior Managers, not just the firms, to ensure that the organisation is compliant with the rules set out by the FCA. Senior Managers have a duty of responsibility for the aspects of the organisation which fall under their remit. They will need to ensure that every reasonable step is taken to ensure the organisation achieves compliance and follows the conduct rules.

But accountability doesn’t only apply to Senior Managers, all staff that carry out functions that could pose a risk to the firm and/or its customers will hold a Certification Function and need to adhere to the FCA’s 5 Conduct Rules. Senior Managers also have a second-tier of Conduct Rules which apply directly to them.

That does not mean that firms are absolved of all responsibility. They need to ensure that the prescribed responsibilities are allocated correctly and should be included in the Senior Manager’s statement of responsibilities.

Why is individual accountability so important?

The SMCR and the conduct rules are there to ensure that financial firms conduct themselves with honesty and uphold the integrity of the market, preventing harm to consumers and the financial industry.

The emphasis on individual accountability aims to ensure that this culture is embedded throughout the organisation rather than becoming a tick-box exercise in compliance. This culture of accountability ensures that the conduct rules are not taken lightly as Senior Managers could personally face the consequences if they are found to have failed to take reasonable steps to prevent misconduct.

What do organisations need to do to support this?

Organisations still have a responsibility to ensure the conduct rules are followed to maintain compliance with the SMCR. They can support the Senior Managers in managing their individual accountability by ensuring they understand what is expected of them and that their responsibilities are clearly set out and documented.

Offering training, not only to Senior Managers but to all individuals whose role would impact SMCR compliance, is a brilliant way to ensure that everyone understands their obligations and how the conduct rules apply to them. Even Senior Managers who have been certified for a long time could benefit from updated training to ensure they still understand what is required of them and the impact of failing to take reasonable steps to ensure compliance. Training should also be offered to new staff whose roles would impact SMCR (even if they have worked within similar roles in other firms) to ensure they understand how compliance applies and is maintained within their role in your unique organisation.

What is the “right culture” for financial services?

The FCA’s Conduct Rules aim to nurture a culture that ensures organisations act with honesty, provides good outcomes for consumers, and protects the integrity of the financial system within the UK. Values of positivity, integrity, and trust should be embedded in organisational culture to ensure that staff act with the consumer in mind and don’t look to misuse the power that their role within financial services allows them.

Individual accountability makes sure that the conduct rules are understood and followed by everyone within the organisation. It ensures that everyone understands that they play a role in ensuring compliance is met and that their organisation acts in the best interests of consumers and the financial system. For Senior Managers, it means recognising the responsibility they have to uphold the company culture and ensure they act with due skill, care, and diligence.

In July 2023, the FCA will be adding a sixth conduct rule which focuses on the Consumer Duty. We’ll be sharing more information on what this could mean for your organisation soon. Subscribe now so you never miss an update.

To find out more about how we can support your organisation with bespoke SMCR training for your staff or for a review of your current SMCR processes please get in touch.