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Digital Subscriptions > The Hedge Fund Journal > Issue 141 – Jun | Jul 2019 > Robert Quinn Consulting’s SMCR Offering

Robert Quinn Consulting’s SMCR Offering

Contemplating the new regime

The genesis of the Senior Managers and Certification Regime (SMCR) lies in the financial crisis. The FCA thought they had adequate powers to hold people to account under the Approved Persons Regime (APR), but actually struggled to identify the key decision makers, as some senior managers were able to deflect responsibility and pass the buck. The UK Government instructed the FCA to create a regime of personal accountability. The extent to which politicians want to lay blame on the financial sector was seen in early proposals to remove the presumption of innocence – dubbed “the golden thread of English law” – from senior managers. This did not materialise, but senior managers will need to demonstrate that they have taken “reasonable steps” to prevent a breach of their assigned responsibilities. The latest legislation will extend the regime to asset managers, from December 9th 2019.

Robert Quinn Consulting (RQC) founder, Robert Quinn, observes that, “unlike MiFID II, which is intellectually very complicated, SMCR is relatively easy to understand, but not necessarily easy to implement”.

The experience of banks, which have applied SMCR since March 7, 2016, suggests that challenges can relate to time, internal politics and personalities. “Where small firms have a simple business model and are run by their founders it may be clear who is in what role, but in other firms there can be differences of opinion,” says Quinn. The wrangling can even escalate into internecine disputes about which senior management functions to assign to which people.

Coverage

Most hedge fund managers are expected to come under the “core” regime of SMCR, subject to standard requirements. A handful of hedge fund managers that are part of firms running over £50 billion could face extra requirements under the “enhanced” category, as could some proprietary trading firms with perhaps only 20 or so staff, by dint of the size of their trading books (and these firms dealing as principal also have a different regulatory capital regime, points out Quinn). Those running internal AIFs, meeting certain criteria, could be in the limited scope regime, with reduced requirements.

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