Countdown to the Senior Managers Regime

 

CP17/25: Individual accountability – extending the Senior Managers and Certification Regime to all FCA firms

Yesterday 26th July 2017 the FCA published their Consultation Paper (CP) on extending the SMR regime to Consumer Credit firms

To read the CP click below

https://www.fca.org.uk/publication/consultation/cp17-25.pdf

Rules on increasing individual accountability in the banking sector

The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) introduced a range of policy changes that aim to increase individual accountability within the banking sector.

The rules on individual accountability were introduced following changes set out in the Banking Reform Act 2013, based on the Parliamentary Commission for Banking Standards’ recommendations to improve professional standards and culture within the UK banking industry.

The rules make it easier for firms and regulators to be clear about who is responsible for what. Clear individual accountability should focus minds, drive up standards, and make firms easier to run and to supervise. And if things go wrong, it will allow senior managers to be held to account where they are at fault for misconduct that falls within their area of responsibility. It will also hold individuals working at all levels within relevant firms to appropriate standards of conduct.

Who it currently applies to

The rules apply to:

  • banks
  • building societies
  • credit unions
  • the largest investment banks that are regulated by the PRA
  • branches of foreign banks operating in the UK

Extension of the Regime to all FSMA authorised firms

The Bank of England and Financial Services Act 2016 includes the extension of the Senior Managers and Certification Regime (SM&CR) to all FSMA authorised firms. This will affect firms who offer financial services and are regulated by us. We are developing our approach to the extension of the SM&CR and our current plan is to consult during Q2 of 2017. HM Treasury has stated their intention that the regime should start from 2018.

Senior Managers Regime

The Senior Managers Regime (SMR) for Bank and Insurers started on 7 March 2016. It focuses on the most senior individuals in firms who hold key roles or have overall responsibility for whole areas of relevant firms. Firms need to:

  • ensure each Senior Manager has a Statement of Responsibilities setting out the areas for which they are personally accountable
  • produce a Firm Responsibilities Map that knits these together
  • ensure that all Senior Managers are pre-approved by the regulators before carrying out their roles

The Government also introduced a ‘duty of responsibility’, which means Senior Managers are required to take the steps that it is reasonable for a person in that position to take, to prevent a regulatory breach from occurring. This formed part of the Bank of England and Financial Services Act 2016.

This replaces the current Approved Person regime which is in place for FCA Consumer Credit regulated firms.

Certification Regime

This applies to ‘material risk-takers’ (these are staff who are subject to the Dual Regulated Firms Remuneration Code and other staff who pose a risk of significant harm to the firm or any of its customers (eg, staff who give investment or mortgage advice or who administer benchmarks). Firms need to have identified:

  • all certified individuals by 7 March 2016
  • assess them as fit and proper by 7 March 2017
  • have procedures in place to re-assess the fitness and propriety of certified staff on an annual basis

The Financial Services Register now reflects Senior Managers & Certification Regime information for relevant firms.

Post 2018 this will probably include all employees who discuss finance solutions with customers.

Conduct Rules

These are high-level rules that apply directly to nearly all staff (apart from ancillary staff eg catering staff). Firms must ensure that staff who are subject to the rules are aware of them and how they apply to their jobs.

From March 2016, the Conduct Rules applied to Senior Managers and staff in the Certification Regime. The rules apply to everyone else from March 2017.

Whistleblowing

Rules on strengthening whistleblowing systems and controls in firms and to promote a culture where people can speak up came into effect in September 2016. These rules apply to deposit-takers (meaning banks, building societies and credit unions) with assets over £250m, Solvency II insurers and PRA-designated investment firms.

‘Speaking out’ as it is being referred to within the compliance world will be rolled out to all regulated firms in 2018.

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