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The incoming Senior Managers and Certification Regime (SMCR), which was first applied to banks and building societies in 2016 and is in the process of being extended to almost all regulated firms including insurance, has seen significant “scope creep,” according to a former Financial Conduct Authority (FCA) executive.
The regulation, which the FCA says is designed to make individuals more accountable for their conduct and competence, was initially devised to address issues in the banking sector in the wake of the 2008 financial crisis.
But it will soon apply to insurers and eventually intermediaries, coming into force in December 2018 and in 2019 respectively for each group under current extension plans.
“This is a very long, slow burn. This starts really with the failure of the regulators to find a way to hold senior people to account during the crisis,” said Gavin Stewart, associate director of Grant Thornton and former FCA chief risk officer.
“Part of my caution about the regime as a whole, is that what effectively has happened here is something that was designed to deal with a problem in, let’s say, half a dozen major banks during the crisis, has morphed into a massive scope that covers every regulated firm,” Stewart said at an MGAA event at Lloyd’s of London this week.
“It’s done that over a number of different steps, but it still seems to me, as a former regulator, quite a significant piece of scope creep, with not a lot of solid evidence that what may well be a good idea for major clearing banks is automatically a good idea for everyone else.”
As the insurance industry grapples with getting its head around the SMCR – one study has suggested that brokers still have a lot to learn on the subject – Stewart said that understanding the regulator’s driving force is key.
“This isn’t ‘what you see is what you get’. The trick to this is understanding why it’s turned up, why it’s turned up in the form it is in, and what it’s going to feel like down the line, post-implementation as well as pre. A lot of the burden is going to come after [the extension implementation date], rather than before,” he said.
He added: “It’s not about compliance as such, in terms of a ticking-the-box piece of regulation. This is about understanding why it’s there and when it’s going to get hot. This only arises because parliament, the media, and the public generally, were dissatisfied with various aspects of how the regulator was able to act during the crisis.”
