The FCA’s expanding regulations

The Financial Conduct Authority (FCA) have oversight and maintains governance over the UK’s financial sector. Although not every financial product and offering in the UK is regulated in the same way, most consumer-focused financial products are governed by the FCA.

Most recently in the UK, the FCA have been rolling out their scheme which covers almost all financial firms practicing and operating in the UK; the Senior Managers and Certification Regime commonly referred to as ‘SMCR’(more information).

This governance regime has a wide reach and covers almost every firm which is regulated by the FCA and which offers any product or advice to customers, ranging from companies offering forms of consumer credit to the public to more complex mortgage and loan providers offering bespoke products to specific demographics and customers.

Most commonly these include:

After the Financial Crisis in 2007-8, there were increased calls for the financial sector to be subject to tighter controls to ensure that vulnerable people were not taken advantage of and to ensure that money is more responsible lent. Importantly, in recent times, it has also been acknowledged that all businesses that operate financial services in any way, be it a company providing credit for dentures in Manchester to a specialist mortgage broker offering bridging loans, must be covered by relevant regulations.

Furthermore, in the case of mortgages, because people owing money to lenders were unable to make their required mortgage repayments and cope with other, day-to-day financial commitments they had, they had their properties seized.

One of the biggest problems in the compliance sector is that responsibility and accountability are vague. Typically, if there is a breach in the terms of governance or if a company breaks the rules as part of the FCA’s regulatory framework, the compliance officer is help to account. However, there is a large disconnect between a compliance officer and a client-facing financial advisor. Also, part of the problem is that the person breaching the rules, if not the employee with oversight and responsibilities should surely be held accountable?

Hence, SMCR ingrains an increased degree of personal responsibility and accountability within the financial sector. The relevant employees and people within firms need to be trained to varying levels and annually in some cases. A person’s position and responsibilities in a company will determine the training they are required to undertake.

Ultimately, the FCA are seeking to instil a very different culture in the financial sector, moving away from finger-pointing and box-ticking type compliance to a more transparent, sustainable, logical and realistic position.

Types of firms subject to SMCR

The FCA have categorised financial firms in the UK into three distinct categories, each of which comes with its own set of responsibilities, required training and regulatory obligations.

Core Firms – These are the vast majority of UK firms and form the basis of this regulatory regime. Core firms’ requirements form the ‘baseline expectation’ for the financial sector.

Enhanced Firms – These firms are generally to be subject to the same requirements as core firms but may have additional and more complex obligations. ‘Enhanced’ firms in general are those who have more complex requirements and who have more complex structures, making governance more nuanced and perhaps even more complicated. These are the firms who require much more complex and detailed oversight by the FCA for a whole host of reasons.

Limited Scope Firms – As well as firms that are subject to enhanced and even additional levels of regulation and governance, there are also those who have reduced regulatory obligations under SMCR. These Limited Scope Firms will have reduced levels of obligations and responsibilities. They are not however absolved from regulations, as many of them will be subject to other regulatory frameworks and regimes such as the Approved Persons Regime or others.

It is important to note however, that being under the Senior Managers Regime (SMR), a different regime, UK banks are not subject to the obligations and regulations under the SMCR regime for other financial companies.