Reasonable Steps Evidence Assistance

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3 years ago

SMCR Reasonable Steps Have To Be Evidenced

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What are reasonable steps?

The introduction of the SMCR statutory duty of responsibility (SDR) places the onus on Senior Managers to take “reasonable steps” to prevent regulatory breaches from occurring or continuing to occur, and the new Senior Manager Conduct Rules require Senior Managers to take reasonable steps to effectively control their area of the business, to delegate appropriately and to comply with regulatory requirements.

The new SDR supersedes the original ‘presumption of responsibility’ which would have reversed the burden of proof, requiring Senior Manager Functions (SMFs)to prove that the steps they took were reasonable. The same tough underlying obligation will remain on the individual to ensure that they take reasonable steps, and the key is to have these recorded correctly, but the burden is now on the regulators to prove that a Senior Manager has failed to do so.

Of course, the term ‘reasonable’ is generic, subjective and relative, the guidance provided by regulators during the SMR consultation period did go some way towards demonstrating what is expected. SMFs are potentially taking ‘reasonable steps’ every working day but do not necessarily think of their actions in these terms. Making decisions on resourcing allocation, assessing the competence of staff, reading and responding to management reports could and should all be considered examples of reasonable steps if they are done appropriately. Whilst the PRA and FCA will be the final arbiter of what is ‘appropriate’ or ‘reasonable’ they have provided some guidance as to how they will approach this evaluation.

Regulatory expectations of reasonable steps

In the case of a regulatory breach the regulators have indicated they will assess the steps that the specific Senior Manager actually took, against such steps as the regulators consider that a Senior Manager in that position could reasonably have been expected to take to avoid the contravention occurring or continuing to occur.

So how does an SMF evidence the steps taken to ensure that they made and acted on decisions that were reasonable?

The following is a non-exhaustive set of considerations that may help SMFs evidence their reasonable steps on an on-going basis, building up a complete picture of who, what, where, when and how.

Reasonable steps: Minutes from Board and Board Committees

• Do formal meeting minutes accurately record the level and persons involved in pertinent discussion, debate and relevant challenge provided by SMFs around key issues?

• Do SMFs have the opportunity to review and amend draft minutes before they are finalised?

• Do SMFs evidence embeddedness of any changes? How?

Statements of Responsibilities and Management Responsibilities Maps

• Do they accurately reflect the actual responsibilities of Senior Managers and any inter-relationship between those responsibilities and the responsibilities of other SMFs in the firm?

• Do SMFs proactively inform the document owner when their responsibilities change?

Reasonable steps: Organisation charts

• Does the firm have a robust and accurate reporting structure that is understood and can be clearly articulated by SMFs?

• If the firm has matrix reporting lines, is it clearly defined who is reporting to whom and for what?

Reasonable steps: Handover Material – Not Applicable to Core or Limited Firms – but a consideration

• Does the firm have a standard approach to recording the handover between outgoing and incoming SMFs?

• Are these records practical and helpful, including an assessment of what issues should be prioritised? Do they include judgement and opinion, not just facts and figures?

Reasonable steps: Management Information (MI) and Reports

• Is the firm’s MI and reporting concise, accurate, timely, forward-looking and prioritised on a risk basis? Where it is not, is this effectively and routinely challenged by SMFs?

• Do SMFs receive regular reports for their area of responsibility demonstrating how issues and risks are escalated and managed, and providing insights into the information available at a point in time?

Are staff management meetings, including action plans, remedial plans or development strategy created for each meeting?

• Are these reports stored/archived and can they be easily retrieved if required?

Reasonable steps: CVs, Role Profile and Job Description

• Do CV/role profiles accurately demonstrate the expertise and competence the SMF had, or ought to have possessed, in order to effectively and efficiently perform their specific function?

• If SMFs delegate functions, are these captured in a way that allows appropriate oversight and monitoring?

• Do role profiles of delegates support the SMFs decision to delegate to that individual (e.g. skills, seniority, capacity etc.)?

Reasonable steps: Email records

• Where issues are being dealt with immediately and important decisions are being agreed verbally, do SMFs follow up important discussions and decisions with an email to the relevant people so that is clear to all parties what was agreed and the next steps, including time expectations for reporting?

Reasonable steps: Meetings and standing agendas

• Do SMFs ensure meeting invites are diarised to evidence frequency and scope of meetings?

• Do SMFs agree high-level standing agendas for regular meetings to help demonstrate that they received regular updates on key topics (e.g. risks, issues, resource, financial position etc.)?

Reasonable steps: Departmental action logs

• Do SMFs record actions agreed in team meetings to evidence what was discussed and agreed?

• Can SMFs evidence that actions were assigned to appropriate owners and with consideration of other demands on the team’s time?

• Is there a clear record of following up on actions and ensuring they are closed out in good time?

• Do SMFs evidence embeddedness of any departmental changes?

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This guide is only an aide memoire and intended for information only for anyone appraising the documentation needed in an audit/compliance check. It is not to be considered as direct advice or intended to replace specific 1 to 1 engagement with your compliance and risk professional.