Potential Significant Reforms for HR Teams in Financial Services
The SMCR was first introduced in 2016 following the global financial crisis with the intention of improving governance across the sector, encouraging individuals to take greater responsibility for their actions, to discourage misconduct by making it easier to hold individuals to account and to bring more individuals within financial services firms into the regulated framework.
The reasons for this new review and the details of what are under consideration are limited at this time, and the move could be considered surprising especially in view of the fact that the SMCR regime is widely credited as having had a positive impact of the behaviour of firms and individuals. Surveys undertaken by both the Prudential Regulation Authority (PRA) in 2020 and the Financial Conduct Authority (FCA) earlier in 2022 reported the positive effects of the SMCR regime and the FCA noted it has “raised standards across the industry and a lower number of [enforcement] cases reflects the fact that the regime is working as intended”.
However, the costs of compliance with the SMCR regime are significant, and HR teams within the Financial Services sector will be aware of the additional compliance burdens it places on them throughout the lifecycle of the employment relationship, from recruitment to disciplinary action and even after termination.
A review with potential reforms may therefore be welcome news for some, if as its understood is likely to be the case, the intention is to make compliance with the regime less onerous.
The government has attempted to address immediate concerns that repealing and relaxing regulations could risk the UK falling victim of another financial crisis, by assuring markets that the reforms are intended to invite investment into the UK and will not simply be “deregulation for deregulation’s sake”, but it is clear that the government’s view going forward is that the elimination of unnecessary “red tape” will result in economic growth.
All we know at this stage is that the announcement confirmed that the government will launch a Call for Evidence to obtain views on the effectiveness, proportionality and scope of the regime, and to seek views on potential improvements and reforms. The PRA and FCA will also review the regulatory framework. This is due to begin in the first quarter of 2023.
Until then we will have to wait and see what the review might bring and how far reaching any changes might be.
If you have any questions about the SMCR regime and how it might apply to your employees, we have specialist solicitors within our employment team who would be happy to help.
This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.
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