FCA recommends extension of SMCR to credit rating agencies

The FCA’s annual perimeter report recommends extending the SMCR to credit rating agencies, as well as recognised investment exchanges, and payments and e-money firms. 

The report says:

“The Senior Managers and Certification Regime (SM&CR) aims to reduce harm to consumers and strengthen market integrity by improving conduct at all levels within firms and enhancing senior management accountability. We see the SM&CR as a key part of transforming culture in the financial industry and an important supervisory tool. The regime was rolled out to all solo-regulated firms authorised under FSMA on 9 December 2019, including investment firms operating a trading venue (ie multilateral trading facilities and organised trading facilities). 

However, the SM&CR does not currently apply universally. For example, it does not apply to Recognised Investment Exchanges (RIEs), Credit Ratings Agencies (CRAs) or payments and e-money firms. This is because they are not authorised under FSMA, and are instead subject to a separate process of recognition (RIEs), registration (CRAs), or authorisation and regulation (payment and e-money firms).

Extending the SM&CR to the payments and e-money sector would enhance individual accountability and governance within firms, and strengthen our ability to supervise such firms by giving us a wider range of tools to drive higher standards and mitigate risks of consumer harm.

Extending the regime to RIEs and CRAs would deliver greater accountability and robust oversight of functions that promote market integrity. It would also ensure consistency in relation to our supervisory expectations of individuals discharging key responsibilities. 

In addition, a number of key trading venues are part of the same group as central counterparties (CCPs). The Treasury is currently consulting on creating an SM&CR for Financial Market Infrastructures (FMIs) supervised by the Bank of England (including CCPs), which would closely mirror the existing SM&CR. If these proposals are taken forward, then extending the SM&CR to RIEs would mean more  consistency within key firms in the same group.

As outlined above, we see value in extending the SM&CR to these firms, and will continue to work with the Treasury on this issue.

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The perimeter report will form the basis of a formal discussion between the Chief Executive of the FCA and one of the Treasury Ministers (the Economic Secretary to the Treasury) before the end of the year, the minutes of which will be published. That is likely to give an indication as to whether the government will legislate to extend the SMCR to credit rating agencies.