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SM&CR: The New Reality of Compliance While Working From Home

The FCA makes it clear that as the working environment changes, your firm’s approach to effective T&C delivery should follow suit.

A three-year study by leading artificial intelligence T&C platform provider, Elephants Don’t Forget, has concluded that the average level of tenured employee competency is just 54%.

Adrian Harvey, CEO of Elephants Don’t Forget, stated: “The culmination of our three-year study, which analysed over 72 million individual employee interactions from some of the world’s best-known brands – many of whom work within the financial services market – indicates that most employees only know half of what they need to in order to perform their roles competently and within the regulations.”

Harvey asserts that this study further compounds the mounting issues that firms are currently facing in effectively monitoring conduct and competence knowledge regarding the Senior Managers and Certification Regime (SM&CR) in a work from home environment.

Harvey continued: “If the average level of employee competency is just 54% when employees are working in an office environment – where conduct can be monitored and vital peer-to-peer support provided – in a work from home environment, this will have a serious detrimental impact on competency levels and instances of increased misconduct, hence why the Financial Conduct Authority (FCA) issued a statement to that effect in their January edition of Market Watch.”

In the FCA’s January Market Watch 66 newsletter, the FCA issued notice that risks from misconduct might be heightened or increased by homeworking, and outlined that firms need to be more adaptable to addressing the conduct concerns within the changing environment in which they operate.

Harvey continued: “It appears that the FCA is rightly questioning what additional steps firms are taking to ensure governance standards are at least as robust now in a WFH environment as they were before Covid-19 hit. I say “additional” because any regulated firm reading this who hasn’t materially made changes to their employee governance practices addressing WFH, is almost certainly exposed.”

To give firms further cause for concern, a 2020 Covid-19 Insights study conducted by Elephant’s Don’t Forget – which was distributed to over 2,000 L&D practitioners – found that 62% of L&D professionals stated that their main concern was a lack of peer-to-peer training during the pandemic.

65% of companies reported that the volume of self-selection training materials has worryingly remained the same or has decreased during the pandemic. The most alarming statistic to emerge from the study is that just 3% of companies said that they had seen a large increase in employees engaging in self-selection training materials online.[1]

Harvey added: “Effective training, supervision and monitoring of misconduct and competency breaches are going to become more prevalent and difficult as new processes – especially regarding the continued implementation of the SM&CR in a remote setting – are implemented. The SM&CR is no longer just a set of rules; it represents a new way of working in terms of employee support, facilitating in-role capability and compliance adherence, and firms need to take stock of their current T&C processes to ensure they can continually meet the regulator’s expectations on all fronts.”

Harvey asserts that firms must have a more pragmatic approach to meet the demands of a changing working environment and that there must be more emphasis on effective T&C as a result.

Communicating what is expected of employees in this new normal does not go far enough for Harvey. Practical training and monitoring around adherence to the SM&CR, combined with individual in-role competency initiatives about how employees adhere to – and employers critically evidence – conduct policy and values in their daily activities is vital to meet the regulator’s expectations of the regime.

Harvey added: “The fact of the matter is this: there is a new reality of ensuring compliance in a remote working environment. The FCA wants to see a culture of ethical compliance embedded in all firms across the industry. This translates to delivering T&C that tangibly improves and empowers employee decision making; one that results in them being trained to do the ‘right thing’ and evidence this, rather than just completing another tick box training assessment. Self-attestations from employees stating they have completed training are simply not robust enough to demonstrate evidence and mitigate misconduct risks when working remotely.

The four common elements of a healthy culture – as noted by the FCA – are characterised as: ‘meaningful purpose’, ‘appropriate governance to facilitate good decision making’, ‘effective leadership’, and ‘people policies that incentivise behaviours’. The way firms now choose to deliver their T&C has a direct consequence on all these outcomes.

Firms now have a unique opportunity to audit their processes and ‘sense check’ how good their T&C process is to ensure they continually meet them.”

Harvey also stated that it was noteworthy that the FCA has acknowledged that it will be integrating culture assessments into its supervision model for some firms later this year.

On the back of last year’s warning by the regulator – which noted that firms that failed to support good business culture could expect increased supervisory scrutiny – Harvey expects this scrutiny to come in the guise of articulating the evidence, and that the acid test will come when firms are asked to present evidence for how they are consistently monitoring these areas – both pre- and post-pandemic – and how they make – and continue to make improvements – when required.

Harvey concluded: “Objective facts – and not subjective statements – will enable firms to honestly quantify how prepared they actually are right now. There are three key areas of overarching concern for firms to bear in mind at this juncture.

“Firstly, the devil is in the recent detail issued by the FCA, and it is important that firms fully understand the overall scope of these details in relation to the regime, as overlooking them will not help firms to achieve what the regulator is looking for.

“Secondly, ensuring Senior Managers, HR, T&C and Compliance departments are aligned in delivering the project is critical.

“Thirdly, it is important to remember that this is not a tick box exercise; firms that simply look to break component parts down into tasks to ‘tick off’ and move on to the next run the risk of not truly embedding values that promote the sustainable culture change, misconduct mitigation, and ethical decision making that the regulator is looking for.”

Elephants Don’t Forget use an AI known as Clever Nelly to support worldwide organisations including Aviva, RSA, Accenture and Experian, helping them compensate for the Training & Competency deficiencies of working from home and employee competency.


  • Gina is a fintech journalist (BA, MA) who works across broadcast and print. She has written for most national newspapers and started her career in BBC local radio.

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