** This article is republished with kind permission from Global Banking Regulation Review. To see the article as it was originally published, please click here. **

Similarities between the FCA’s introduction of the Senior Managers and Certification Regime, and current proposals for a consumer duty, may be a harbinger of success for the latter, writes Jenny Stainsby, the head of Herbert Smith Freehills’ global financial services regulatory practice.

All significant regulatory change requires a similar approach: a gap analysis, material process and systems changes, training and monitoring. But there are striking similarities between the changes introducing the regulatory regime for individual accountability in financial services in the UK and the FCA’s current proposals to introduce a Consumer Duty.

These similarities may predict that, after a period of upheaval and significant cost, the worthy objective of establishing a higher level of consumer protection in retail financial markets and, importantly for firms and customers alike, greater consumer trust, can be achieved.

Restoring trust in financial services was a key driver for the introduction of the Senior Managers and Certification Regime (SMCR), first implemented in 2016. The SMCR originated from a recommendation of the Parliamentary Commission for Banking Standards (PCBS) for greater individual accountability in financial services, following the 2008 banking crisis and revelations of conduct failings at the time, including LIBOR manipulation.

The PCBS also debated the need for a ”duty of care” in financial services. They didn’t recommend the introduction of such a duty, but the debate continued. Now that debate has eventuated in the FCA’s current proposal for a package of measures, centred around a new Principle requiring authorised firms to “act to deliver good outcomes for retail customers” – the new Consumer Duty.

The SMCR and the Consumer Duty share lofty aims of setting new standards and creating healthy culture. Other similarities include greater definition and awareness of roles and responsibilities. In the SMCR this includes the formal allocation of certain “prescribed responsibilities” to individuals and responsibility maps; in the Consumer Duty, guidance is provided on the respective roles of product manufacturers and those who distribute those products.

A cornerstone of both the SMCR and the Consumer Duty is the need to be able to demonstrate compliance with their requirements. This has required a rethink and revamp of the recording of decision making for SMCR. Implementation of the Consumer Duty appears to require an even greater reassessment of how decisions are made and recorded, including in relation to pricing.

These fundamental changes are no doubt reflected in the hefty price tag associated with the Consumer Duty – the FCA estimates the cost of implementation for the industry could be £2.4 billion (US$3.26 billion), with ongoing annual cost estimated at £176 million (US$239 million).

One of the aims of the Consumer Duty is to reduce the need for regulatory intervention. Interestingly, while this was not an initial ambition of the SMCR – on the contrary, many predicted a deluge of regulatory action against senior managers – the limited number of such actions suggests the SMCR has resulted in behaviour change. Indeed, in an evaluation of the SMCR published in December 2020, the PRA reported that around 95% of the firms it had surveyed said the SMCR was having a positive effect on individual behaviour.

Only time will tell however whether the Consumer Duty will equally successfully result in the changes envisioned and ultimately improve trust in financial services.


Jenny Stainsby
Jenny Stainsby
+44 20 7466 2995