SMCR: an effective deterrent?

The Senior Managers & Certification Regime (SMCR) was introduced in early 2016 to establish "effective governance in firms by encouraging greater individual accountability". However, following a response to a recent Freedom of Information (FOI) request, questions have been raised as to its effectiveness as a deterrent.

Financial regulation consultancy, Bovill, has received the response to an FOI request which highlights that since SMCR's implementation in 2016, the FCA has conducted only 34 investigations and one successful enforcement action following alleged breaches of SMCR.

Given that the SMCR governs 50,000 firms, concerns have been raised over the effectiveness of the legislation. If its primary purpose is to hold senior managers to account, it is hard to believe that there have only been 34 instances that require investigation.

The CEO of Bovill, Ben Blackett Ord, states that the FOI response demonstrates that the SMCR does not have the "right tools for the job" and queries whether it even serves its primary purpose.

He discounts a number of theories for the low investigation rate by the FCA. In particular, he states that whilst Covid-19 may have delayed investigations, processes can (and should) be adaptable. He also alludes to a bigger problem; that many cases were closed without any investigatory action at all so the theory that the SMCR is preventing such behaviour cannot be relied upon. It would suggest that the problem lies elsewhere.

The SMCR was implemented to reduce harm to customers through improving accountability in regulated firms. It has been reported that Covid-19 has led to an increased risk to individuals and their investments through poor advice or, in some cases, fraudulent intervention. Given the findings in the FOI request, the regulator may decide to toughen its approach to SMCR enforcement action to prove that it is taking steps to protect individuals.

The finding does, of course, add to the increasing pressure on the regulator to take a proactive stance to regulation and protect the needs of consumers.