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One year on: SMR is making a needed difference

Posted: 6 March 2017 | Duff & Phelps | No comments yet

A year on from implementation, the Senior Managers Regime (SMR) look to be having the desired effect according to those in financial services.

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SMR proves to be making a positive difference in financial servicesThe Senior Managers & Certification Regime (SMR) has already had a positive impact on the financial services sector, according to a survey of nearly 200 senior financial services executives.

55% of those polled by Duff & Phelps believe the SMR has positively affected the banking and alternative investment communities, while just 15% say it has had a negative impact.

The first anniversary of the regime’s introduction is quickly approaching (March 7), and firms have seen a real change in culture over the last year in what might now be considered a watershed regulation for the UK financial services sector.

“The threat of personal sanctions is ensuring compliance functions put their duties before other considerations,” explained Monique Melis, Managing Director and Service Line Head at Regulatory Consulting. “Where managers fail to support them, they themselves may face penalties. We have seen SMCR start to change the way compliance departments budget. They are not just counting compliance costs, but the costs of hiring a replacement compliance officer or interim staff, for regulatory penalties and remediation in cases of failure, and for their own personal liability if things go wrong. In short, this regime may have been a game-changer after all. Almost a decade after the financial crisis, cultural change in financial services is finally starting to happen.”

Duff & Phelps surveyed 183 senior financial services executives, compliance professionals and investment managers operating in the US, Europe and Asia. This was conducted in conjuncture with Duff & Phelps’ Global Regulatory Outlook report, with respondents contacted in Q1 2017.

“In short, this regime may have been a game-changer after all…”

Monique Melis, Regulatory Consulting

Commenting on the findings, Dean Curtis, Managing Director at LexisNexis Risk Solutions, said: “Broadening the scope of personal accountability across the financial services market has clearly had a positive effect. In truth, financial crime professionals have always been highly accountable – but by making other senior individuals just as accountable, the SMR has improved communication, collaboration and ownership across different business functions. As a result, issues raised by Money Laundering Reporting Officers (MLROs) that impact compliance fall on more receptive ears. Increased personal liability has therefore not only fundamentally shifted corporate mentalities, but also improved day-to-day processes in many banks.

“However, there is still pressure to resource experienced financial crime professionals. Following the introduction of the SMR fewer professionals are considering leaving their jobs than first feared, but it is becoming a barrier to hiring for such positions – particularly quality talent for retail and investment banks.”

Meanwhile, Jennyfer Stanley, Senior Director at Synechron Business Consulting, also commented on the new poll’s results, saying: “At the senior level there may be increased scrutiny of appropriateness during the interview process, but we have not seen or heard major impact on hiring. What is more evident is that as part of mandatory training, the message is stronger regarding personal accountability. It is everyone’s responsibility regardless of level of seniority in the firm and everyone is directly or indirectly accountable for the safeguarding of the firm’s reputation. We also see such training and recertification of adherence to controls, policy and procedures happening at a more frequent level as a reminder of this responsibility.”

Concluding, Stanley said: “Banks will also need to have a process of continuous review of their controls, policies and procedures to keep up with the changing banking landscape and determine ongoing appropriateness. This is critical.”

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