As SMCR has become more of a focus over the last 18 months, I’ve posted periodic blogs about different aspect of the new accountability regime and how I think it might play out. With the next wave of Implementation about to roll in – the full regime is applied to dual-regulated insurance firms on 10 December – and having thought about it and talked to people a good deal, it feels time to start writing about SMCR more frequently and more systematically.
Having said that, this series has the capacity to turn into more of a stream of consciousness, but hopefully it will be none the worse for that, and provide some interest and usefulness along the way.
To start with, I’ve jotted down five areas in which SMCR seems to have the potential to start quiet revolutions in how firms operate:
Minute-taking in key committees: This is about Senior Managers being able to demonstrate “reasonable steps” around key decisions, covering the substance of the debate rather than just actions, and explaining for example why they decided Option 2 was better than 1 and 3.
Consistency: This tends to focus on a greater sharing of experience between Senior Managers, and covers both personnel questions (e.g. how similar conduct issues are dealt with in different areas of the firm) and how they have dealt with broader business problems.
Formality: There is a definite concern, though the strength of it varies, about SMCR forcing a clogging up of decision making, introducing new layers of formal process where there’s no real need.
Document retention: SMCR has encouraged some Senior Managers to take greater care over the retention of the key documents they relied on when taking decisions, so they are more readily able to explain how they have taken reasonable steps.
Scenarios: SMCR matters most, not when everything is going smoothly but when the business is under stress or something has gone wrong. Consequently, some firms are starting to look, mostly informally at the moment, at how accountability would work in practice in different scenarios.
Depending on the firm, all of these trends might be good things in themselves, but equally they each have potential to become a cottage industry. Understanding how far you want to go down these roads will become a significant challenge for Boards and ExCos.
On 4 July 2018, we published near final rules for how we plan to extend the Senior Managers and Certification Regime (SM&CR) to all dual-regulated insurers.