Unintended Consequences: How to Prepare for SM&CR

By The Enforcd Team

At the end of the year the Senior Manager’s Regime will be extended to cover all regulated firms. If firms have been behaving themselves this shouldn’t change much about their regular practices but evidencing compliance could still be a big piece of work and this may have all sorts of unintended consequences.

Much of SM&CR focuses on best practice – in other words, the kind of things people should be doing already. It’s an attempt to increase accountability and to ensure firms are delivering on the positive culture which the FCA would like to see more of. So, if your firm behaves itself, it shouldn’t, in theory, change much about what you do. However, the rules themselves could alter attitudes to decision making, while complying with the rules will incur an additional cost.

Will it cost more?

As ever with the arrival of new regulations, many of the arguments focus around how much this might cost. The implication will be that complying with SM&CR will increase the cost of doing business and force companies to pass these on to their clients.

Firms will need to evidence compliance. Documents must be signed and data provided showing that the firm has stayed within the letter and the spirit of the regulations. It’s another layer of oversight which will inevitably put a strain on time and resources.

If something does go wrong, firms will need to produce data and employ people to ensure its accuracy. Resources will need to be allocated and processes drawn up in order to provide as much data as possible. It’s not just about doing the right thing – it’s about being able to prove that you have done the right thing.

Unintended consequences

The regulations may also have a number of unintended consequences depending on how firms perceive the rules. Some will be frightened of falling into non-compliance and this could prevent them from taking legitimate business decisions which would have improved the value for their clients. Much of this may involve a lack of understanding or a natural caution among people who don’t want to land themselves in trouble.

For a lesson in this, we can look at the recent developments in right to rent regulations. These placed additional responsibilities on landlords to make sure anyone they were renting to were legally allowed to live and rent in the UK. It involves a lot of work and can put them in line for sizeable fines. Unsurprisingly, many of them decided to simply avoid renting to anyone other than a full-blown British citizen. Equally unsurprisingly, therefore, the High Court recently ruled that it was racist.

These are all problems which can be mitigated depending on how firms approach the new regulations. Good control of data will make it quick, simple and straightforward to evidence compliance. Ensuring that everyone within the team has a good understanding of the regulations will also boost confidence and help people to go about their business safe in the knowledge.

There are, then, risks that this could increase costs, and create an atmosphere of excessive caution, but as with so many things in the world, so much depends on how you approach it.