Finance Monthly December 2019 Edition

26 www.finance-monthly.com FINANCE & BUSINESS - MAKING TRAINING & COMPETENCE WORK In larger firms, the activities within T&C schemes may vary for different roles, e.g. investment adviser, mortgage adviser, investment manager and complaint handler (to name but a few), however the overall design of a firm’s T&C framework will largely remain the same. However, with larger numbers of employees in any given T&C framework, larger firms tend to provide more resources in support of the scheme and a greater focus on a more regular range of assessment activities. By contrast, although smaller firms, such as SMEs, will likely have fewer numbers of employees in their T&C scheme, they still have the same regulatory responsibilities as larger firms. In our experience, smaller firms have to focus harder on “not just doing it because they have to”. With smaller numbers, and usually inherently more flexibility, the trick is to extract as much commercial benefit as they can from their T&C framework, focusing on ensuring the framework is configured to improve competence and business performance, not just tick the regulatory box. In our opinion, smaller organisations now have an ideal opportunity to review and enhance their approach to T&C and employee competence. The opportunity comes in the guise of the incoming Senior Managers and Certification Regime (SM&CR). SM&CR is, or at least should be, well known to firms across financial services. It arguably represents the greatest regulatory shake-up for a generation across the wider financial services industry. Importantly, with a go-live date of 9th December 2019, it should be ‘front of mind’ for firms. (Banks and insurance firms went live in 2016.) Worksmart have been working intensively in the SM&CR ‘space’ for over three years, supporting both the major industry trade bodies and customers alike in preparing for the incoming rules. Our trade body partners’ experience is that firms, large and small, have invested heavily in their preparations - which is good news. SM&CR has three key elements to it and the area that most definitely crosses over with T&C is the Certification element of the regime. Employees in roles that can cause significant harm to either customers, the firm or both become part of the firm’s internal Certification Regime. Once in the Certification Regime, employees are assigned one of the eight Significant Harm Functions (SHF) roles defined by the regulator. There is no direct overlap between employee roles in T&C schemes and those classed as SHFs. Indeed, some firms subject to SM&CR who with employees in identified SHF roles, do not need a T&C scheme due to their regulatory permissions and the products and services they provide. However, for many firms, SMEs included, there is a clear overlap between the two independent (but complementary) sets of regulatory requirements. Additionally, the Certification Regime brings a requirement for firms to operate an “Internal Certification Process” to ensure that there is a formal process of assessment that the firm undertakes against every individual caught by the regime. This must be done annually. To achieve this, the firm needs to ensure, and evidence to themselves, that employees in certification are competent to undertake their role, that they are both trained in and abide by the conduct rules and that they are Fit and Proper. Finally, under SM&CR, a senior executive in each firm is responsible for the firm’s certification regime. They are personally accountable to the regulator for its effective operation. Therefore, whilst they may not personally sign off the annual certification process, they remain accountable. From our experience of working in the banking sector, which implemented SM&CR in March 2016, this has focused minds! Certification Regime – Significant Harm Functions CASS oversight Proprietary trader Significant management Functions requiring qualifications Managers of certification employees Material risk-takers Client-dealing Algorithmic trading Although the ‘go-live’ date for SM&CR is 9th December 2019, there will be a strong focus on implementing Certification in readiness for the first annual deadline in 2020. “ “