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March 16, 2020
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The Senior Managers & Certification Regime – Righting Regulatory Wrongs?

As of 9 December 2019, the Senior Managers and Certification Regime (SMCR) became applicable to almost all firms regulated by the Prudential Regulation Authority and the Financial Services Authority, demonstrating that individual accountability remains a key priority for regulators. Chris Brennan (partner) and Zeena Saleh (associate) of White & Case LLP outline the key changes and implications for us.

The global financial crisis spurred a flurry of regulatory activity – large cross-border investigations, record fines and a thirst for more individual accountability – giving further credence to the third law of regulation; for every market action, there is an equal and opposite regulatory reaction.

While regulators have long been successful at holding firms to account for wrongdoing, they have had much less success holding individuals to account. The view from the regulator was that the failure to discipline individuals is often caused by difficulties in attributing control failings to particular individuals, for example, because of collective decision-making.

SMCR was established following the recommendations of the Parliamentary Commission on Banking Standards. The regime seeks to reduce the pool of senior individuals directly approved by the regulators, while encouraging individuals to take greater responsibility for their own actions. It is also designed to make it easier for firms and regulators to hold particular individuals to account for a regulatory failure within a firm. It was first applied to banks from March 2016 and later applied to all dual-regulated firms from December 2018.

To further ensure (as far as possible) a consistent approach across the financial services industry, as of 9 December 2019, the regime was extended again to apply to the 47,000 solo-regulated firms. Firms will have one year (until 9 December 2020) to take certain steps required by the regime. So, what are the implications of this for soloregulated firms and what measures should firms be taking, if they have not done so already?

Key Changes

SMCR aims to “…encourage greater individual accountability and sets a new standard of personal conduct in financial services …” with a view to strengthening confidence in the financial services industry and ultimately reduce harm to consumers.

The extended regime applies to a vast and varied group of firms. The FCA has taken this into account proposing a proportionate and flexible approach to the application of the regime. This is demonstrated by the FCA’s categorisation of firms – limited, core or enhanced – with the regulations under SMCR applying to such firms accordingly.

This short article does not seek to set out all the changes brought about by SMCR. However, the key changes can be summarised into the following three categories:

1. Conduct Rules – – the Conduct Rules replace the Statements of Principle and Code of Practice for Approved Persons (APER) and applies to a broader group of employees.

2. Senior Managers Regime – Senior Management Functions (SMF) replace the previous Significant Influence Functions. Each senior manager must obtain pre-approval from the FCA prior to starting the role. The regime introduces prescribed responsibilities to be allocated to SMFs and the concept of a ‘Statement of Responsibilities’ for enhanced firms which should clearly articulate what that individual is responsible and ultimately accountable for.

3. Certification Regime – The Certification Regime applies to employees in positions where it is possible for them to cause significant harm to the firm, its customers and the market more generally. These individuals will not require pre-approval from the regulator before starting the role but must be certified as fit and proper by the firm.

Key Implications

While it is certainly hoped that, in practice, firms and their senior individuals were acting in a way that reflects the spirit of the new regime, SMCR still arguably constitutes a significant practical change – expanding its reach, placing more responsibility on firms and a greater emphasis on individual accountability. Some key implications include:

1. Conduct rules have a broader reach, applying to a larger pool of employees when compared to the previous APER regime. Firms will need to ensure that its employees are aware of the conduct rules as they apply to them.

2. SMCR has effectively reduced the number of SMFs requiring FCA approval and increased the number of employees that would fall within the certification regime. This places a greater onus on firms. While those holding a SMF will need to obtain the FCAs pre-approval before taking on the role, the burden of assessing a certified employee’s fitness and propriety is now on a firm. Although previously firms would always make an assessment of an individual’s fitness and propriety, the regulator would always have the final say. Firms are now required to reach their own decision on this issue and face the consequences if they get it wrong. Firms are also required to provide regulatory references to a new employer and, given the new employer’s degree of reliance on the reference, will need to carefully consider what information to include and the appropriateness or adequacy of such information.

3. In terms of individual accountability, it should be easier for regulators to identify who is responsible for any given issue within a firm. However, the assessment of whether an individual is culpable for a regulatory failing remains the same. While the new regime introduces some specific rules, any enforcement action is likely to focus on the question of whether the person took reasonable steps. While this is not always easy to demonstrate, it is a relatively low threshold. The problem is that although the FCA has to establish that the individual failed to take reasonable steps, the practical burden will always fall on the senior manager to demonstrate what they did to fulfil their regulatory obligations.

IS IT ENOUGH TO RIGHT PAST WRONGS?

The introduction of SMCR is a positive step for the industry in many ways. Establishing who is responsible for what within a firm, provides clarity for regulators, firms and individuals alike. However, in larger firms, the ability to attribute culpability for a control failing is unlikely to be as ‘black and white’ as it might appear on a Statement of Responsibilities. The regulator must be careful to avoid trying to create a culture of strict liability. The fact that an issue is said to be the responsibility of a particular individual, does not mean that individual has to take the blame. Life is never that simple – not even in politics.

 

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March 11, 2020
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The future of talent acquisition

HR Grapevine pulled together talent acquisition leaders in London to discuss the future of this crucial business function.

Importance of talent acquisition

Talent is increasingly seen as the core foundation of success in the business sphere. In fact, organisations consider getting hold of the right talent to be so important that according to a recent PwC survey of CEOs, 80% are either extremely or somewhat concerned about getting access to the skills their business needs. This has rocketed up from just over 50% in 2012. But why the anxiety?

It could be that businesses know if they cannot get the right talent then they will not be able to innovate nor pursue market opportunities, resulting in delays to overall strategy. They also might be aware that the talent acquisition space is rapidly changing with, as Deloitte’s 2019 Human Capital report lays out, ‘recruiting becoming harder than ever’. Half of respondents to a separate HR survey noted that competition for the best applicants is fiercer than ever.

The above is compounded by changes that are happening within the talent acquisition function itself. New choices of technology, the rising prominence of data and analytics, the importance of communication, community and networks and better understanding of the impact of branding means that the function now finds itself at a critical moment of change whilst also being seen as critical to business.

This is why Allegis Global Solutions (AGS) and HR Grapevine recently hosted a roundtable of senior HR and talent acquisition leaders from a broad cross-section of different industries: to find out how they perceive their own talent acquisition function’s ability, where the pressure points lie, and how it could change for the better.

Chaired by Ewan Greig, Talent Solutions Analyst at AGS, the leaders discussed why and how they measure their talent acquisition process, how important managers are to the process, as well as the importance of branding, networking, data collection, vendor support and leadership.

Measuring talent acquisition

“In theory, running a project to capture hard metrics and experiential data across the hiring process before deciding on an improvement plan seems like common sense,” explains Greig. His words were corroborated by the roundtable attendees, many of whom agreed that a good place to begin assessment would be whether talent acquisition strategy matches overall organisational strategy, before delving into measuring specific parts of the process.

However, whilst there was an agreement that collecting measurements after each stage of the hiring process would be useful – as well as surveying candidates on their hiring experience – there were questions of how often measurements should take place, with worries over whether too much measurement might cause candidate fatigue. Yet, consensus was that not all data needs to come from candidate feedback. In fact, high-performing talent acquisition functions could be collating data from the performance of everything from their career site to time-to-hire; it’s whether they had the resource to do anything with this data afterwards that most seemed to worry about.

Managerial capability

A recurring theme to the roundtable discussion regarded the importance of line managers to the talent acquisition process. Many believed that talent acquisition should be a supporting function to many hiring processes, creating best practice documents and development programmes for managers to drive their own hiring.

As the leaders in the room saw it, talent acquisition cannot carry out every aspect of hiring due to lack of resources; therefore, it makes sense the function should better align with managers to drive better hiring behaviours.

The danger is, as one or two in the room stated, that if they do not clearly communicate and develop best practice hiring behaviours then poor managerial capability will hurt everything from the success of talent acquisition to employer branding and the bottom line.

Branding

One company who attended the roundtable laid out that it treats its employer branding – branding is a crucial part of talent acquisition, as found by an AGS and HR Grapevine research on The Shape of Talent Acquisition Across Europe – like a marketing function, who are tasked with selling the company and the role. Its talent acquisition is interested in ‘selling’ the candidate ‘more than a job’.

Yet, there was a heated discussion over whether employer brand should be left to grow organically or push the brand to grow, what the best way to use social media to grow the brand is, how branding efforts turn into an actual hire and whether it is possible to know if branding engages with the right talent personas.

Regardless, branding was seen as crucial. “The employer brand is the image and representation of what it’s really like to work at an organisation. From a consumer and B2B perspective, having a compelling brand is critical to driving business success,” explains Kristin Shulman, Global Director of Marketing and Brand at AGS.

The employer brand is the image and representation of what it’s really like to work at an organisation

So, where is the talent?

With so many considerations, it can be difficult to understand where the talent is, let alone how to acquire it. As one roundtable attendee says: “How can we hire for future talent if we don’t know what it will be?” Of course, there are many ways to get around this, including understanding the organisational strategy, better understanding the shape of the market and incubating specific communities of talent with key talent personas within this. It’s how they go about this that will be crucial.

Will organisations use technology, data and external partners to drive these necessary changes? Responses from within the room suggest a mixed approach but any change was considered good.

As Jade Clifford, Executive Director and Head of RPO EMEA for AGS, explains: “Each change to improve talent acquisition will make an incrementally positive impact on the chances of success, where key differentiators will fundamentally link back to how easy, fast, and enjoyable the process is.”

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March 11, 2020
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MSPs to vote on putting politicians through same background checks as people working with children

MSPs will vote this week on plans to make politicians undergo the same background checks as people working with children, according to the Sunday Post.

The move comes in the wake of Derek Mackay resigning as Finance Secretary after sending unsolicited messages to a 16-year-old boy.

Lib Dem health spokesman, Alex Cole-Hamilton, described his proposed amendments to the Disclosure (Scotland) Bill as a “common sense safety move”.

They would make it an offence for any MP, MSP or councillor to meet with a child or vulnerable person without undergoing a Protecting Vulnerable Groups (PVG) check.

Mr Cole-Hamilton said: “My proposal to extend PVG checks to politicians is a common sense safety move designed to ensure there are proper protections in place for children and vulnerable adults who come into contact with them.

“These checks are commonplace in sports clubs, community groups and health and social care settings. There is no good reason to exempt elected politicians and other powerful figures working within political parties.”

He added: “There is often a significant power imbalance between those in elected office and those who encounter them.”

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