Background Checks for SMCR Compliance in Financial Institutions

The financial services business depends on trust. To safeguard customers and ensure a healthy market, the Financial Conduct Authority (FCA) established the Senior Managers and Certification Regime (SMCR). This framework emphasises individual accountability, ensuring that everyone in the company takes responsibility for their actions and competence.

A Breakdown of the Key Components

Senior Manager Regime (SMR)

Senior Manager Regime is at the top layer of the SMCR structure. It delegates certain responsibilities to specified Senior Manager Functions (SMFs) that the regulator had previously approved. Each company must develop a responsibility map defining the assigned obligations for each senior manager.

Certification Regime

The certification regime focuses on persons whose responsibilities have the ability to significantly affect consumer and company-wide risks. Unlike senior managers, people under the certification regime do not need direct FCA clearance. Businesses are required to undertake annual certifications to ensure that employees have the requisite credentials and competence for their positions.

Conduct Rules

The SMCR provides a set of Individual Conduct Rules that apply to everyone in the company except ancillary staff. These guidelines seek to promote ethical behaviour, enforce due diligence, encourage cooperation with regulators, advocate for fair customer treatment, and maintain market conduct norms. Senior managers are subject to an additional set of conduct rules, which require even greater accountability.

Note: Both the Senior Manager Regime and the Certification Regime require individuals to achieve particular fitness and propriety standards on an annual basis. These criteria include proper qualifications, suitable training, and necessary abilities. Additionally, job references and criminal background checks (DBS) are required. It is vital to understand that DBS checks are now required for top management and Non-Executive Directors (NEDs), but not yet for certification functions.

The 3-Pillars of FCA

The Financial Conduct Authority (FCA) emphasises fitness and propriety (F&P) when assessing persons in financial services organisations. To guarantee compliance with the Senior Managers and Certification Regime (SMCR), organisations must examine candidates and staff based on three main F&P considerations:
 

Honesty, Integrity, and Reputation.

• This pillar emphasises the individual's moral character and ethical conduct.


• The FCA takes into account issues such as previous disciplinary actions, a history of financial misbehaviour, and an overall reputation for honesty.


• Businesses should determine whether the candidate exhibits a commitment to ethical behaviour and is consistent with the organisation's values.

Competence and Capabilities

• This pillar assesses the individual's skills, expertise, and experience in connection to the specific function they will perform.


• Relevant qualifications, professional certifications, and a track record of performance in similar roles are critical considerations.


• Businesses must ensure that the candidate has the essential competencies to properly carry out their tasks and contribute positively to the organisation.

Financial Soundness

• This pillar examines the individual's financial condition to discover any potential conflicts of interest or vulnerabilities that may impair their judgement.


• The FCA takes into factors such as a history of bankruptcy, high debt, and involvement in financial fraud.


• Businesses should ensure that the candidate's financial condition does not put the organisation at risk or create incentives for unethical behaviour.

Background Checks for Ensuring SMCR Compliance

The Financial Conduct Authority (FCA) proposes a standard set of background checks for those seeking for Senior Manager Functions (SMFs). These checks include:

• Regulatory Reference Checks: Confirming previous regulatory actions or sanctions against the candidate.


• Qualification Checks: Confirming the accuracy and authenticity of reported qualifications and certifications.


• Adverse credit checks: Analysing financial history to discover potential conflicts of interest or financial weaknesses.


• Directorship checks: Identifying any current or previous directorships held by the candidate.


• Criminal Record Checks (DBS Checks): Verifying the candidate's criminal record in the UK.

These checks are the basic requirements for SMF applicants. To boost your due diligence approach, consider the following additional checks:

• Overseas Criminal Record Checks: For candidates with overseas expertise, background checks in relevant nations might help paint a more complete picture.


• Sanctions checks: For screening against sanction lists to uncover potential connections to individuals or businesses on restricted lists.


• Occupational History Checks: Verifying a candidate's previous employment history and references can help assess their professional conduct and experience.


• FCA Register Search: Checking the FCA registration for any previous regulatory interactions with the candidate.

DBS Checks for SMCR

The Senior Managers and Certification Regime (SMCR) established by the FCA requires Disclosure and Barring Service (DBS) checks for specific roles inside financial services organisations. Understanding the distinction between Standard and Basic DBS checks is critical for achieving compliance.

Standard DBS Checks

• Required for: Individuals undertaking Senior Management Functions (SMFs) as specified by the FCA.


• Scope: Searches the applicant's entire criminal record, including both spent and unspent convictions, cautions, warnings, and reprimands.


• Offers a more detailed picture: This thorough evaluation assists in determining an individual's suitability for a high-risk, SMF role in which they have great influence.

Basic DBS Checks

• Recommended for: All other staff members who do not possess SMF positions.


• Scope: Checks the Police National Computer (PNC) for unspent convictions and conditional cautions.


• Focuses on recent and significant offences: This check simplifies the procedure for non-SMF positions while still detecting potentially troubling recent criminal activities.

Partner with the Best

The complexities of the Senior Managers and Certification Regime (SMCR), along with background checks, can be a significant barrier for FCA-regulated businesses. Non-compliance with the FCA's regulations can lead to serious consequences. Partnering with an expert like Complygate, which has years of experience helping both public and private sector institutions, is critical for successful SMCR implementation. Our team of experts understands the complexities of SMCR and background screening procedures for FCA-regulated businesses. We provide full support to ensure that your organisation meets all its obligations and fosters a culture of accountability.

Contact us today to learn more about how our experience can assist your company achieve a compliant and effective SMCR implementation.