SMCR Reasonable Steps – step by step
The Duty of Responsibility
Every Senior Manager has a Duty of Responsibility under the Financial Services and Markets Act 2000, which means that if a firm breaches one of the FCA’s many requirements, the Senior Manager responsible for that area could very well be held accountable if they failed to take reasonable steps to prevent or stop the breach. The Duty of Responsibility is designed to enshrine the move to individual accountability. But how?
- misconduct occurred within the Senior Manager’s firm
- at the time of the misconduct (or during any part of it), the Senior Manager was responsible for the management of any of the firm’s activities in relation to which the misconduct occurred
- the Senior Manager did not take reasonable steps to avoid the misconduct occurring or continuing.
- For incoming Senior Managers, reading the outgoing Senior Manager’s handover note can be a quick way of getting an early impression of the challenges and potential issues pertinent to the business area.
- Effectively challenging and scrutinising key decisions made by the Senior Manager’s team will help to show that the business area is not run unthinkingly. Offering a considered opinion on matters is an important step in showing that the decision-making process has been thoroughly thought through.
- The plethora of Management Information (MI) can be unhelpful, but understanding which parts are relevant to the business area and prioritising them can be an effective way of capturing potential issues before they crystallise into something far worse. SMFs should be proactively reviewing relevant MI to help inform decision-making.
- SMCR and the concept of individual accountability does not negate or diminish the need to delegate but equally, it does not absolve any SMF when the delegated task creates issues or control weaknesses. Where delegation is used, the SMF should maintain oversight of the task(s). This can include periodically set meetings, daily updates, logs or reports. Any delegation should be done in a clear manner so that there is no ambiguity as to which members of the team hold certain actions, tasks and deliverables and where the reporting lines exist.
- Visibility of other business areas, which the SMF may not necessarily be responsible for, can be a useful way of understanding pertinent risks to the business as a whole. Working in a collaborative manner with other departments and SMFs can help identify issues (before they escalate) and potential solutions. A second pair of eyes can offer an objective view on matters and assist in deciding what further steps should be taken.
- Independent assessment and appraisal can “benchmark” the status of the firm from a governance, risk and compliance perpective, don’t rely on retained services to do this automatically: often a fresh view can pay dividends.
- A SMF should be prepared to escalate issues to other business areas, the relevant governance committees and, if the severity of the issue warrants, to board level.
- All SMFs should be proactive in managing and escalating any resource and capability issues within their business area. If the lack of employees or gaps in knowledge is hindering their ability to effectively manage and mitigate risk, this will often prevent the SMF from taking reasonable steps.
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Thoughts on Organisational Charts
Regulatory Complaint Handling & The FCA
Compliance Annual Reporting Requirement
The Importance of Good Management Information (MI)
Directors and/or Partners Responsibilities and Further Training
Compliant Financial Promotions – Advertising
Governance Risk & Compliance Frameworks
The Importance and Value Of The MLRO’s Report
Compliance Bench-Mark Check: Annual Policy Review