The Senior Managers Regime - impact on internal audit and audit committees. Ian Gardner, Partner Charles Portsmouth, Director

Transcription

1 The Senior Managers Regime - impact on internal audit and audit committees Ian Gardner, Partner Charles Portsmouth, Director

2 Session coverage Background and overview of SMCR Lessons learnt from the first round of SMCR The impact of individual accountability on Heads of Internal Audit / Audit Committee Chairs Areas of focus for internal audit

3 SMCR is an individual accountability framework focusing on professional standards and culture in the financial services sector Senior Managers Regime Ongoing Individual Accountability Conduct Rules Certification Regime

4 Proposed extension of SMCR to all FCA regulated firms Core Regime Most solo regulated firms Coverage of all 3 requirements Enhanced regime Limited scope firms Largest and most complex firms (<1% of solo firms) Subject to extra requirements Firms currently subject to a limited application of Approved Persons Regime Fewer requirements than Core firms

5 Key elements of SMR Senior Management Functions Criminal Records Checks Senior Managers Regime Duty of Responsibility Prescribed Responsibilities Regulatory References Handover Procedures Statement of Responsibilities Overall Responsibility Persons pre-approved by PRA / FCA Conduct Rules

6 Key elements of Certification Regime Applies to people who are not Senior Managers but who can cause significant harm to the firm or its customers Criminal Records Checks Regulatory References Certification Regime No pre-approval by PRA / FCA Firm must certify annually the individuals are fit & proper for their role Conduct Rules

7 Fitness & propriety Personal good repute Certification Regime Personal - integrity Competence / knowledge / experience Regulatory References Criminal Records Checks Relevant Qualifications

8 Management & governance arrangements Senior Managers & responsibilities Responsibilities Map Reporting lines Allocation of Prescribed Responsibilities Linkage to group governance arrangements

9 Conduct Rules First Tier Act with integrity Apply to (nearly) all staff You must: Act with due skill, care and diligence Be open and cooperative with the regulators Pay due regard to the interests of customers and treat them fairly Observe proper standards of market conduct

10 Conduct Rules Second Tier Senior Managers must take reasonable steps to ensure: the business of the firm for which you are responsible is controlled effectively. the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system. any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively. Disclose appropriately any information of which the FCA or the PRA would reasonably expect to have notice.

11 SMCR: Common Misconceptions SM&CR is owned by Compliance Other business areas not involved No linkage with other systems / processes Does not involve any sensitivity Just an iteration of the Approved Person s regime

12 SMCR: Key implementation challenges Identifying Certified Persons SMF direct reports Annual Certification Handover process BAU Ownership Regulatory references Record keeping Challenges Role of HR, 2LOD & 3LOD

13 Challenges for SMFs and questions for IA Understanding Accountability Governance Reasonable steps Alignment Embedding Do I understand SMR and my own role & responsibilities? How do I appoint & oversee direct reports & ensure I remain accountable? MI to Board or Committee robust, focussed, timely & accurate? What steps are reasonable? Evidence needed? Processes & controls operating in line with my responsibility? Robust processes embedded but responsive to change in business?

14 The Impact of SMR on Audit Committees Significant functions AC Chair: Responsibility for chairing and overseeing the performance of any committee responsible for the oversight of the internal audit function Practical implications Conducting and evidencing effective Chairmanship Evidential and proactive support for and management of Head of Internal Audit

15 An effective Audit Committee demonstrates the attributes of a high performing team Clear vision Inspiring leader Focussed discipline Key attributes Teamwork

16 Impact of SMR Heads of IA Senior Manager Regime Certification Regime Role/ responsibilities Fitness & propriety Conduct Standards Team leadership

17 Relevance of IA activity Insightful/ impactful assurance Practical implications - HIA Stakeholder engagement Say it as it is IA's culture

18 Conduct standards Quality Practical implications IA function Delivery Impact/ influence Evidence

19 Thematic areas of focus for IA Fitness & propriety Reporting & management information Governance Accountabilities & delegation Training & awareness Conduct standards Potential areas of focus Role of HR, 2LOD & 3LOD