What are the SMCR Conduct Rules?

Abbie Glossop Date published: Feb 26, 21

The SMCR Conduct Rules are a key element of the Senior Managers Certification Regime, which was introduced by the Financial Conduct Authority (FCA) back in 2016. We previously explored what SMCR entails, but what are the SMCR Conduct Rules and how will they impact your organisation?

The Conduct Rules are a set of principles that apply to both an organisation’s regulated and unregulated financial services activities. They aim to ensure that a minimum standard of professional behaviour is consistently followed throughout organisations.

There are two tiers of Conduct Rules. The first tier applies to all employees who carry out financial services activities, while the additional second tier applies solely to Senior Managers. In section 11 of their SMCR Guide for Solo-Regulated Firms, the FCA set out the SMCR Conduct Rules as follows:

First Tier – Individual Conduct Rules

1. You must act with integrity
2. You must act with due care, skill and diligence
3. You must be open and cooperative with the FCA, the PRA and other regulators
4. You must pay due regard to the interests of customers and treat them fairly
5. You must observe proper standards of market conduct

Second Tier – Senior Manager Conduct Rules

SC1. You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively

SC2. You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system

SC3. You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively

SC4. You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice

Who must comply with the SMCR Conduct Rules?

Nearly all staff working in FCA regulated firms will need to abide by the new Conduct Rules. This includes all Senior Managers, Certified Functions and Non-Executive Directors who are not Senior Managers. Essentially, if an individual could cause harm to your business or the financial industry, they must conform to the expected standards of behaviour outlined within the regulation.

The only individuals exempt from SMCR Conduct Rules are ancillary staff. These are defined by the FCA as employees whose job does not directly relate to financial services, such as receptionists, security guards, medical staff, IT support and cleaners.

For everybody else, compliance is paramount, and it is the responsibility of financial firms to communicate with everyone impacted so that they clearly understand what the Conduct Rules are, how they relate to their jobs, and why they are important.

How to embed FCA SMCR Conduct Rules into your firm

To integrate the required standards of professional conduct into your firm, staff must be trained in the Conduct Rules. Here are some actionable steps you can take to ensure this is successful:

Personalise training

According to the FCA, the most important thing firms can do is tailor training to the roles and responsibilities of each member of staff. The FCA also recommends that training should be interactive, placed in the wider context of SMCR, and incorporate real-life situations. This will help staff to easily understand how the Conduct Rules apply to them in a specific and practical sense.

Cooperate with others

Line managers should be involved in the training process, and it is useful to get support from your HR and Compliance teams too. This will ensure that training is relevant for the different jobs people have, carried out consistently across your firm, and frequently reinforced.

Empower staff

Training must enable staff to recognise when SMCR rules are breached and give them the confidence to report misconduct. If a Senior Manager breaches the Conduct Rules, the FCA expects firms to report the incident within seven working days. Breaches by other members of staff should be reported during the annual reporting process – unless the case of misconduct is deemed too severe and the FCA must be made aware earlier.

Be prepared

The deadline for firms to comply with the Conduct Rules is the 31^st of March 2021.  With the regulation giving firms much to consider and implement, meeting this deadline will undoubtedly take a lot of work. If you haven’t already begun to train staff, now is the time to start.

The importance of abiding by SMCR rules

Non-compliance carries serious consequences when it comes to SMCR. The FCA’s call for greater personal accountability brings with it the potential for fines and even criminal charges if any misconduct occurs. To protect your own reputation as well as that of your firm, regulatory compliance has never been more important.

It is also worth remembering that the FCA introduced the regulation to improve the overall culture of the financial industry, and the Conduct Rules reflect this need for healthier standards. Responsibility for turning the industry around for the better falls on everyone working within financial services, and complying with the Conduct Rules will lay the groundwork for long-lasting change.