• Nick Child, Head of the Product Advisory Board at Fonetic


• 01.07.2019 10:00 am
SMR Regulation , Financial IT

“Is this the route to restore trust? I hope and think so, but we are not at the end of this journey, and arguably never will be” – FCA chief, Andrew Bailey, on the hotly debated Senior Managers Regime (SMR).

Rolling out to banks and insurance companies in six months’ time, the SMR requires anyone who holds a senior management role to document how they discharge their responsibilities. This formal document needs to explain exactly how they have covered their risks of any regulatory breach.

As with so many new regulations, the devil is very much in the detail. In this case, being “personally liable” is the critical phrase. This means, in the event that a senior executive at a bank is found to be in breach of the rules, they could lose their home, personal savings, and not to mention, face the very real risk of a ban. A worrying prospect, particularly given the fact that last year saw a 70% increase in the number of lifetime bans across the industry.

With such extreme consequences at stake, boardroom executives are at significant risk if they fail to take action. The biggest concern for any senior manager is the ability to trace, monitor and to be able to audit their employee’s activities and actions. It’s now essential to have a means to prove active control and supervision of employees. So, given that executives will ultimately be held personally accountable for explaining what they did, or didn’t do, how exactly do those under the spotlight more effectively control communications across the business? Essentially, there are four pillars to any effective review of communications.

Understanding your communications landscape

Having a surveillance policy in place is a starting point, but this needs to be built on a thorough understanding of the methods and tools that employees use for communications. The landscape has grown increasingly complicated as technology has advanced. Voice calls can obviously take place on both mobile phones and landlines. In addition, third party applications like WhatsApp can be used as well as a plethora of both internal and external
‘chat’ functions. To evidence effective management, firms need to be able to show that all of this is covered.

The need for clear escalation and review

Clear and easily customisable workflows are important to enable firms to keep track of responsibility. Customising what each individual executive is able to see, such as what evidence triggered the alert, prevents valuable information from being exposed to lower level staff, while also ensuring much tighter and more controlled surveillance. Full documentary evidence of process around review and escalation is essential to evidence appropriate control.

Early intervention measures

It’s no longer the case that illegal activity can only be identified after the fact. Actions like swearing or acting brashly are often indicative of inappropriate or illegal behaviour. Senior execs now have the technology in place to help them catch bad behaviour. This includes identifying early warning signs of market-based issues like front-running or leaking insider information, or HR-based problems such as bullying or inappropriate chat.

Keeping pace with evolution

Markets, systems, processes, people are all constantly changing. What you covered yesterday may not be enough today. Millennials work in different ways to their predecessors, so how will your systems and processes assess this? Keeping up to date with technological and generational advances is essential in order to demonstrate that you have sufficient measures in place to combat inappropriate behaviour.

With the December 9 th deadline looming, Senior managers need to protect themselves by having the best processes and controls in place.

While it’s unrealistic that firms can catch everything, having the correct systems in place will evidence that you took all possible actions to prevent the use of your institution for illegal or inappropriate activity. And as Fonetic Advisory Board member and ex Société Générale MD Sandy Broderick once put it, failure to make the required preparations for SMR could result in some of the highest profile banking executives having to “go home, sell the house and tell the children that this year’s holiday is not to the Caribbean, but to the caravan.” Better communications surveillance, and monitoring tools, is the only way to be absolutely certain of avoiding this type of scenario.