There’s nowhere to run, nowhere to hide. Senior managers in the financial advice world are about to be subject to much higher levels of scrutiny – and responsibility. But if you are an adviser who wants to move jobs, or a firm looking to recruit, the changes affect you too.
On 9th December the senior managers and certification regime (SCMR) comes into force. It puts the liability for bad behaviour squarely on the shoulders of the senior people in an advice firm. A big part of this new ‘buck stops here’ culture makes managers responsible for stopping bad financial advisers moving unchallenged through the sector.
Under SCMR, only senior managers will be approved by the Financial Conduct Authority (FCA) – for core firms the following senior manager functions (SMFs) apply:
SMF1 – Chief executive (currently CF3)
SMF3 – Executive director (currently CF1)
SMF 27 – Partner (currently CF4)
SMF 9 – Chair (currently likely to be CF2)
SMF 16 – Compliance oversight (currently CF10)
SMF17 – Money laundering reporting officer (currently CF11)
For everyone else who would previously have applied to the regulator for the right to advise, typically using FCA Form A, those checks will now be undertaken by the hiring firm instead.
The rules give more power and control to advice businesses to decide the merits of applicants. But also lays on them more responsibility to ensure they are hiring a safe pair of hands.
From 9th December, firms will need to ask candidates applying for roles as senior managers, certification (including CF30s and mortgage advisers) and non-approved roles, for a regulatory reference from all previous employers going back at least six years.
Firms who receive a request for a reference must give one that helps the hiring firm decide if they want to take on the candidate. For the applicant, this means a switch-up in the normal jump first, ask for references later, rules of recruitment – they’ll need to make their current employer aware of their intention to move on before a surprise reference request appears.
Hiring employers will have to spend more time asking for references, and candidates more time waiting for them to be received by their potential new employer, before either can progress.
On the plus side, under SMCR, a senior manager will be obliged to carry out referencing duties, so requests can’t simply be ignored. The onus will be on firms to keep employment records of staff’s behaviour for the required six years.
To comply with the rules, firms may need to bring existing staff files up to date with more referencing to include the fairly broad amount of information required for the fit and proper test, such as any upheld complaints, and there is no time limit for serious misconduct.
From 9th December, recruitment may take a bit longer, but advice firms will benefit from a much greater amount of insight into who they are hiring, which can only be a good thing for a profession that is seeking to further improve its reputation, and build on the progress made under the Retail Distribution Review.
Advisers who have a less than exemplary record will undoubtedly find it more difficult to move into new positions. But a clampdown on bad actors slipping through the cracks is very much the point of the FCA’s rule change.