What Background Checks do I need for SMCR (Senior Management & Certification Regime)?

The SMCR (Senior Management & Certification Regime) was introduced by the Financial Conduct Authority and Prudential Regulation Authority back in 2016. 

SMCR was introduced to improve consumer trust in the financial sector, improve standards and make individuals more accountable for their actions. 

Despite being in place for several years, there is still confusion about what checks employees need under the SMCR. 

Here we cover everything you need to know about background checks and SMCR. 

Who is subject to SMCR? 

The SMCR applies to all firms regulated by the FCA (solo-regulated firms), regulated by the FCA and PRA (dual-regulated firms), banks, building societies, credit unions and large investment firms.

There are two separate regimes under the SMCR: The Senior Management Regime (SMR) and the Certification Regime (CR).

The SMR applies to people fulfilling specific and significant roles in a financial organisation. These roles are identified as those fulfilling Senior Management Functions (SMFs), of which there are 25. The full list of SMFs includes:

SMF 1 Chief Executive function
SMF 2 Chief Finance function
SMF 3 Executive Director
SMF 4 Chief Risk function
SMF 5 Head of Internal Audit
SMF 6 Head of Key Business Area
SMF 7 Group Entity Senior Manager
SMF 8 Credit Union SMF
SMF 9 Chairman
SMF 10 Chair of the Risk Committee
SMF 11 Chair of the Audit Committee
SMF 12 Chair of the Remuneration Committee
SMF 13 Chair of the Nomination Committee
SMF 14 Senior Independent Director
SMF 15 Chair of the With-Profits SMF 16 Compliance Oversight
SMF 17 Money Laundering Reporting
SMF 18 Other overall responsibility function
SMF 19 Head of Overseas Branch
SMF 20 Other local responsibility function
SMF 21 EEA Branch Senior Manager

The following senior management functions are specific to the insurance sector and are governed by the PRA:

SMF 20 Chief Actuary
SMF 20a With-Profits Actuary
SMF 23 Chief Underwriting Officer
SMF 23a Underwriting Risk Oversight (Lloyds)
SMF 24 Chief Operations
SMF 25 Small Insurer Senior Manager Function

Anyone fulfilling a role that corresponds to one of these functions is subject to the SMR. These individuals must be judged to be ‘fit and proper’ under FCA guidance and must be approved by the FCA before they start their role.

The Certification Regime (CR) is less specific. This applies to anyone in a position who could potentially do serious harm to your business, consumers, or the market generally. These individuals don’t need to be approved by the FCA but firms will still be required to assess them against fit and proper guidance.

Background checks are an essential part of establishing whether your employees are fit and proper. What checks you need depends on which regime your employees fall under.

What checks are needed for SMCR compliance? 

 The only background checks that are mandatory for the SMCR under FCA guidance are:

• Relevant DBS Check (Either Standard or Basic)

• Regulatory Reference Checks

• Normal Employment Checks (Right to work, identity)

However, this doesn’t mean they are the only types of background check that you should be conducting.

FCA guidance states that when firms are assessing fitness and propriety, there are three areas to focus on. These are:

• Honesty, integrity and reputation.

• Competence and capability.

• Financial soundness.

The range of information covered by these three innocuous bullet points covers 6 pages in the FCA guidelines. So the information you need to make a fit and proper assessement is a little more complicated than it sounds.

You also need to be able to demonstrate how your firm reached a conclusion regarding an employees fitness and propriety. Conducting background checks is a great way of achieving this as it gives you physical information that can be recorded and used as evidence in support of SMR applications.

That’s why advisors have created the table below. It covers all the checks you might need when making a fit and proper assessment.

The table above is not an exhaustive list, there is a range of other background checks that can be utilised as well. The checks outlined here are those we’ve curated based on the checks we process for our clients in the financial sector.

For more information about our SMCR screening packages, click here, or, give us a call on 01254 355651.