FCA failing to apply powers for sanctioning misconduct under SMCR

Despite being in place for over seven years, only one enforcement action has been taken since the introduction of the Senior Managers and Conduct Regime.

Launched in 2016, the Senior Managers and Certification Regime (SMCR) aims to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence.

While the SMCR initially applied to banks, building societies, credit unions and certain investment firms, the scope of the regulation has since been extended to also cover insurance companies, all solo-regulated firms and benchmark administrators. Today, the regime covers around 48,000 companies.

A Freedom of Information request (FOI) shows that the Financial Conduct Authority (FCA) has launched only 64 investigations under the SMCR since 2016. This means that just 1.5% of investigations have led to enforcement. In addition, over half of the investigations remain open, calling into question the efficacy of the regime.

According to experts from Bovill, a consulting firm specialised in financial regulation, the findings illustrate the need to address the effectiveness of the regime, both in terms of how well the regime is working, and the regulator’s ability to properly enforce it.

“Whilst the regime remains broadly welcomed by the industry, the low number of investigations and lower number of enforcement actions suggests that the regulators are, once again, failing to use the powers that they have to detect and then punish misconduct,” said Ben Blackett-Ord, Executive Chairman at Bovill.

“An effective system for policing senior individuals is crucial to the health of the regulatory system overall, and to UK financial services’ international competitiveness. The intent behind SMCR was always correct, and indeed the regime has significantly improved corporate governance standards, but unless the regulators can demonstrate that they have real teeth in relation to enforcement, it will inevitably underdeliver.”

“It is essential that regulators use the powers that they have been given to hold senior managers to account, but these findings show that there remains significant work to be done before the threat of sanction will acts as a proper deterrent to misconduct at a senior level. We look forward to the publication of the findings from the Treasury and the regulators’ consultations later this year.”