Audit leaders working in an authorised firm (as defined by the Financial Services Markets Act) need to be aware of their personal regulatory accountability.

The chief audit executive is a Senior Management Function 5 (SMF5) role. Aspiring members and those thinking of a first move into financial services take note. We explain the key aspects of the SMF5 role as part of the Senior Managers Regime.

What is the Senior Managers Regime?

It is the approval process for senior managers performing key roles working within financial services (as defined in the FCA handbook and PRA rulebook). Approval must be gained ahead of starting the role. A senior manager must have a 'statement of responsibilities' that clearly says what they are responsible and accountable for. At least once a year organisations need to certify that senior managers are suitable to do their jobs.

Why and when did it come about?

In response to the 2008 banking crisis and significant conduct failings such as the manipulation of London Inter-bank Offered Rate (LIBOR), Parliament set up the Parliamentary Commission for Banking Standards (PCBS) to recommend how to improve standards in the banking sector.

The PCBS recommended a new accountability framework focused on senior management. It also recommended that firms take more responsibility for employees being fit and proper, and that there be better standards of conduct at all levels in banking firms.

Based on these recommendations, Parliament passed legislation in December 2013, leading to the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) applying the Senior Management & Conduct Regime (SM&CR) to the banking sector. Parliament made further changes to legislation in May 2016, requiring the extension of the regime to all Financial Services Markets Act authorised firms.

Purpose of Senior Managers Regime

The aim of the SM&CR is to reduce harm…