Is fintech marketing going to be ready for the Senior Managers Regime?

In it's latest regulatory round up, the FCA has taken the opportunity to remind fintechs that compliance with the Senior Managers and Certification Regime (SM&CR) will be mandatory for all firms by 9 December 2020.

This means firms in the sector will need to make sure that:

• all relevant staff are trained on the 5 Conduct Rules (more on those below) and understand how these rules apply to their roles
• all staff in certified roles are fit and proper to perform that role and are issued with a certificate (there's more on certified roles below too)
• data has been submitted for directory persons working in financial services.

(Stay with me, this is important)

The Conduct Rules

The Conduct Rules set minimum standards of individual behaviour in financial services and apply to almost all employees who carry out financial services activities, or linked activities, in a firm.

First Tier – Individual Conduct Rules

• 1. You must act with integrity
• 2. You must act with due care, skill and diligence
• 3. You must be open and cooperative with the FCA, the PRA and other regulators
• 4. You must pay due regard to the interests of customers and treat them fairly
• 5. You must observe proper standards of market conduct

Given that's what you'd expect of all your employees, it can't be too onerous, can it? Read on.

The most senior people ('Senior Managers') who perform key roles ('Senior Management Functions') will need FCA approval before starting their roles and will be subject to a second set of Conduct Rules.

Every Senior Manager will need to have a 'Statement of Responsibilities' that clearly says what he or she is responsible and accountable for.

Second Tier – Senior Manager Conduct Rules

• SC1. You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
• SC2. You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
• SC3. You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
• SC4. You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.

It's just form filling, right?

Wrong. The essence of the SM&CR is that those that come under it carry personal responsibility for their actions. No longer will perpetators be able to resign or be dismissed from their roles and walk away relatively unscathed, leaving the company to carry the can. The liability for any harm caused will follow them personally. Senior Managers can delegate to others, but this does not reduce their accountability for what they delegate.

What has all this got to do with marketing?

Beyond the fact that anything that affects the integrity of the industry has an impact on marketing, the main point is that marketing as a function has significant potential to cause harm to consumers if it gets it wrong.

The FCA repeatedly identifies misleading or inaccurate financial promotions, firms not explaining the level of service provided, or not providing adeqaute or relevant product information as the causes of consumers making uninformed decisions, such as signing up to risks they don't fully understand.

This means the head of your marketing team, however it is structured, will be regarded by the FCA as a person undertaking an “FCA-specified significant-harm function” - basically a role which does, or might involve, a risk of significant harm to your firm or any of its customers.

In these circumstances, he or she will become subject to a requirement for annual ‘certification’ as a fit and proper person to undertake the role under the Certification Regime.

These individuals won't need to be approved by the FCA. Instead, firms will need to check and certify that they are fit and proper to perform their role at least once a year. This means certifying they have obtained any required qualification; have undergone, or are undergoing, training; possess a level of competence; and have the personal characteristics as are required by the FCA. Appointing an inexperienced intern as the Head of Marketing will no longer be a viable option.

That's OK, I get everything signed off by Compliance, so it's their responsibility.

Good news and bad.

Good, because the FCA likes firms being structured and managed in a manner that prompts engagement with the regulatory regime at all levels, but bad because it's not absolution for the Head of Marketing or their seniors.

FCA Principle 7, one of the fundamental pillars upon which a firm’s lawful conduct of business is based, says: ‘Your firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading’. The FCA expects firms to be structured in a manner where responsibility for FCA Principle 7 is taken by a person who is central to the development and generation of the communications strategy – i.e. the Head of Marketing.

No wriggling off the hook

There's no wriggling off the hook with SM&CR.

The FCA make it clear that it will act and make full use of its regulatory powers where it finds that firms have not put their customers at the heart of how they do business and do not have appropriate governance and systems and controls in place, whatever the size of the firm.

Compliance with SM&CR will undoubtedly take time. As it relates to marketing, this starts with thinking about who you will nominate as the head of marketing and making sure that you will be in a position to certify them as an appropriate person by 9 December this year.

Start preparing now!