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Senior Managers Regime will Necessitate System Soul Searching, Wolters Kluwer Notes in New White Paper

The enactment of the U.K.’s Senior Managers Regime (SMR) and Certification Regime (CR) will cause many firms to take a hard look at internal processes resulting from increased direct accountability. This is the case both from a technological system and cultural perspective, to make this level of governance a reality. And an integrated and centralized governance solution can help banks adapt their business to thrive under the standard according to a new Wolters Kluwer white paper, “Senior Managers Regime: Paving the Way for a New Era of Responsibility.”

Relevant firms are now expected to adhere to a litany of guidelines affecting personal responsibility and codes of conduct. With the emphasis on transparency and controls as well as the connotations of what “responsibility” and “competency” really mean, it’s especially important for the Board, executives and Human Resources department to visibly and tangibly participate in upholding the codes of conduct and the culture changes that need to go along with it.

With the scope of the SMR and CR, not to mention the expectations from regulatory authorities, still taking shape, the steps firms take now to demonstrate sound governance and operational excellence will make for a smoother transition, the white paper argues.

This iteration of the SMR and CR affects an astounding number of people – approximately 10,000 impacted by the SMR and 32,000 affected by the CR. In 2018, when the regulation is set to include an even broader range of firms, the numbers increase dramatically. The Financial Conduct Authority estimates that 100,000 will now impacted by the SMR and more than 98,000 by the CR.

Most firms already have governance systems in place, with more automated features than in the past. But many of these consist of different systems built using different technology and operate in silos, ensuring risks are controlled and compliance is met only within a specific area and potential hazards may not be shared at an organizational level. The challenge now is to streamline these existing, disparate systems so everything is connected, embedding an ongoing practice of testing and controls.

“It’s no longer commercially viable or wise to leave governance and risk management solely to individual teams or departments, where it has historically been managed in silos and often only reported on when an incident occurs,” comments Brian Gregory, EMEA vice president for Non-Financial Risk at Wolters Kluwer and author of the report. “Instead a consistent and common approach to risk management is key. And the more action firms take now surrounding this point, the more positive the experience in the long run and the more compliant they will find themselves.”

Only integrated and centralized systems can handle the level of detail, control and reporting required by U.K. regulators to provide a common language, approach and methodology for the kind of risk management that is necessary to avoid failures, the white paper notes. “A more robust approach to risk

management is a necessity for creating a culturally compliant organization with a consistent and common approach to holistically manage financial and non-financial risk,” Gregory adds.