The SMCR (Senior Managers and Certification Regime) has been a significant topic in financial regulation discussions. Initially, the impact of this regulation, enforced by the FCA (Financial Conduct Authority), seemed to be limited. However, the situation is evolving.
The SMCR is now applicable to all firms regulated by the FCA. This expansion dramatically increases its scope, encompassing over 50,000 organisations in the UK. Given this extensive reach, understanding SMCR and its implications for your business is crucial. This article will explain the essentials of SMCR, highlighting why it is vital for FCA-regulated firms to comply with its standards.
What checks do you need to do?
There’s a lot of misinformation from background checking firms about long lists of checks you need to consider. In respect to SMCR there are two checks you need to conduct for Senior Managers or Employees in certified functions. These are:
This is the minimum proposed requirement for employees working in senior management or certified roles, so for smaller organisations this is the place to start. You see long lists of checks elsewhere, such as: financial, media, identity, and fraud checks. These background checks have a valid purpose and are good practice for due diligence but they are not a requirement under SMCR. They are common practice in the financial sector but you can assess the suitability of these background checks, knowing they’re not a must.
What are these checks?
Regulatory reference checks
Regulatory references are a form of employment reference in which you’re going back to previous employers of your new hires and asking them questions. Cleverly named, the reference check, asks questions around regulatory matters. The for these questions to ask in your regulatory reference. Zinc also provides a template if you want to automate this process. Whilst the FCA makes it easy for you in providing a template, it’s not so easy to collect and complete these references on your candidates. Many larger firms will quote you a six-week turnaround to respond to a regulatory reference request on the first contact. Much of the work is in follow-up to get this reference check back in a timely manner. This is where an does come in handy. Find out more about all types of in this handy guide.
Standard DBS background Checks
The DBS stands for the Disclosure and Barring Service. This is the government entity that runs criminal record checks in England and Wales. This check, in simple terms, is a criminal record check. There are three levels of criminal record check (Basic, Standard, and Enhanced) and this is the middle level of check which will show you all non-spent convictions and some spent convictions. You might think that’s a bit useless, I want to know everything. Any offence will stay on your record for any number of years after the conviction is spent. Very serious offences will stay on your record forever.
What about the rest of your employees?
For those employees who are not in senior management positions or certified functions, there is no requirement under SMCR to conduct background checks.
Not so fast. It is also common practice for firms to conduct employment background checks on all staff since, believe it or not, there are benefits to background checks outside of meeting SMCR. Plus SMCR outlines a firm's culture of good practice. For this, your organisation will state different measures that you’re following which are evidence of good practice. Background checks are a globally recognised form of due diligence required for international quality standards like ISO & SOC 2, therefore it’s a good practice to show the FCA. Therefore employment reference checks and a basic criminal check will help you meet this SMCR requirement.
If you’re a small team you could skip this, but you may end up going back to run checks on their entire team when you get to 50+ people. This is a more painful process than running reference and background checks pre-employment, as it will take longer and you will spend some time chasing your team up. However there’s no shame in doing this, it’s a common scenario for growing businesses.
You don’t need to conduct regulatory references on all employees. Regulatory reference checks will take longer for firms to produce so it’s not advisable and most of the regulatory template will be irrelevant to non-certified or senior roles. However, you may choose to bring some of the FCA’s preferred questioning into your regular employment reference checks. The types of reference questions around disciplinary and fitness are applicable to all roles.
What’s the best way to get these checks done?
You can do these checks yourself, you don’t need to use a background checking provider to help you. If you’re a small team (>30) and not hiring regularly, doing this yourself might not be a bad idea. It will be time-intensive on your part but you will save some money vs. using an outside vendor. If you’re not a small start-up conducting reference checks, particularly regulatory references can prove to be heavy administrative work. It’s both time-consuming to conduct and can also affect time to hire if not chased up properly. Some firms will give you 4-6 week Service-Level Agreement’s (SLA) for replies and need some nudges so if onboarding is time sensitive for you, this is also something to consider.
How do I choose an external provider?
Does it integrate into your HR stack? One of the key benefits to going external will be the time it saves and the speed in which you get these checks back. Finding a background checking solution that integrates seamlessly with your existing HRTech, and is in-line with your employer brand. The ability to request these time-intensive checks at the click of a button directly from your ATS (Applicant Tracking System) can be a real game-changer. Sometimes working with background checking providers can be more work than it’s worth with the amount of admin still required when hiring at scale. At Zinc, our software integrates with some top applicant tracking systems. Take a look to see if we match your stack.
Where is the background checking company based and what support will they offer? A UK-based background checking solution will understand the intricacies of the regulation and checks required better than a company based in the US for example. Quite often checks will be quicker and better value for money. There are some US-centric solutions that will cover these checks for you but not understand the intricacies of these requirements. Some of the larger companies can be a good solution at high volumes if you have the knowledge in-house on how to set up and manage these checks.
If you’re unsure about anything, get in touch with us at Zinc and we can talk you through the background checks you should be conducting to ensure you stay compliant. We work with companies across the UK and understand your specific business needs.
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