SMCR could require UK management shake-up

Regulation designed to draw clear lines of accountability within firms could mean a rethink of management structures or role definitions.

Some UK private fund firms may have to restructure their management as a result of new rules being introduced by the country’s regulator, according to a legal source.

The Senior Managers and Certification Regime, designed to ensure there are clear lines of accountability within regulated firms, is expected to apply to private equity firms from March 2018 and requires each senior manager to have clearly defined responsibilities.

“In organizations where there are multiple reporting lines or where responsibilities are shared between individuals, this is likely to require a degree of analysis and soul searching to define what should be appropriate under the new regime. This might involve changing management structures or role definitions,” Michael Thomas, a regulatory lawyer at Hogan Lovells, told pfm.

The regulation, which has applied to banks since 2016, will apply at different levels of detail depending on the size of the organization, he added.

“Most firms will fall under the ‘core’ regime, with some needing to comply with the ‘enhanced’ requirements that largely reflect the regime that banks had to implement last year,” Thomas said.

Implementing the regime and ensuring ongoing compliance is likely to place a “significant burden” on firms across management, front office and legal, HR and compliance departments, according to a second source.

While it may be painful for some private equity firms, the extension of the regime to cover them and other non-bank, Financial Conduct Authority-regulated firms will provide a more harmonized framework for the regulation of individuals across the UK financial sector.

“This always seemed to me to be where we would end up, after the SMCR regime was originally introduced for banks,” Thomas said, “I think it is almost inevitable that the regime will be introduced.”

The FCA is consulting on the extension of the regime, and firms are invited to comment until November 3.