As with all new regimes, it takes time to embed, and the FCA have rightly staggered the implementation of SM&CR for smaller or solo firms.
Solo firms represent a significant segment of the financial services market. These are small firms directly regulated by the FCA, extremely professional, ethical and a low risk to the consumer. We’re not talking about network members or appointed representatives of larger firms, equally principled. These people fall under the rules that their “principles” require and they would have adhered to SM&CR a long time ago.
The most crucial legacy rule is the Approved Persons – known as APER – in existence since the ’90s this ruling ensures that specific individuals in a regulated firm are individually approved and registered with the FCA. To be approved, you need to be deemed fit and proper, comply with the Statements of Principle and Codes for the roles.
The fit and proper rules are being cut and pasted straight into SM&CR. Known correctly as fitness and propriety, the FCA will test under:
- Honesty, integrity and reputation
- Competence or capability – Training and Competence rules here
- Financial Soundness – think adverse credit on their file
Solo firms will come under SMCR late in 2019, and this very similar set of principles will replace the Approved Persons ruling. From then on, SMCR will work with three sectors within the financial services industry:
- Core firms
- Enhanced firms – higher risk and more responsibility and rules
- Limited scope – plenty of exemptions to the rules