From 7 March 2016 the Senior Managers and Certification regimes will be in force. The overall aim is to improve accountability for individuals working in financial services. The UK’s Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) will require firms to map out the roles of their senior managers and to allocate responsibilities to them so as to make them individually accountable. The changes are designed to improve professional standards and culture within the banking industry in the UK.
In a speech at the end of last year acting FCA CEO Tracey McDermott argued that the “ultimate ambition we all have is for the industry to serve its clients in a way that is innovative, vibrant, competitive and clean”, she explained that the Senior Managers regime was created against “a back-drop of a clear – and shared understanding - that… a culture of personal responsibility had to be embedded." We can expect that her successor, Prudential Regulatory Authority’s Andrew Bailey, will continue with this approach. Meeting the spirit of the new rules, not just the letter of the law, is now expected. Firms must take ownership of the regime and embrace opportunities it presents for their business.
Both and firms in the financial sector will be significantly affected by the regime. All involved will need a thorough understanding of what these changes will mean.
Senior Managers – mapping responsibilities
The regime applies to all individuals exercising a senior management function (SMF). In many cases non-executive directors will also be covered, for example if they chair any committee directly relevant to a firm’s safety or soundness. Firms need to ensure that each Senior Manager has a Statement of Responsibilities – setting out the areas for which they are personally accountable for. These need to be plotted on a firm-wide Responsibilities Map. Firms need to ensure that all Senior Managers are pre-approved by the regulators before carrying out their roles. A “grandfathering” regime is in place to ensure that existing Approved Persons can proceed directly into the regime without have to undergo a fresh-round of approval.
It is important that firms fairly assess the responsibilities of their employees and that the exact extent of their remit is acknowledged and clearly defined so that an individual is not allocated responsibilities outside the scope of their duties, either in their individual statement of responsibility or the firm’s overall responsibilities map. The FCA will be carefully monitoring how firms implement the new regime and it will ultimately impact on their regulatory risk in the future.
A Senior Manager will also need to be appointed by 7 March 2016 as the Whistleblowers’ Champion.
8 February 2016: Final deadline to submit responsibilities maps and statements of responsibilities
8 February 2016: Deadline to submit grandfathering notifications
Senior Managers - what to look out for
Senior managers will need to carefully examine the scope of the responsibilities allocated to them by the firm and to refute anything that is outside their actual responsibility or expertise. The Government has introduced a statutory duty on senior managers to take reasonable steps to prevent regulatory breaches in their areas of responsibility – the so-called “duty of responsibility”. In addition they also face criminal liability if they recklessly make a decision (or fail to prevent a decision) that leads to the failure of a bank.
Certification regime – wider application of new conduct rules
Mid-level employees will be subject to the Certification Regime under which it will be the responsibility of their firm to certify that they are fit and proper on an on-going basis. An assessment by the firm that an individual is not fit and proper could have very serious implications for the individual from an employment and regulatory perspective.
The new conduct rules will be applicable to a much wider number of individuals working in financial services than under the current regime and are broader in scope.
7 March 2016: Reforms to the Senior Managers and Certification Regime come into effect
7 March 2016: All Certified staff must be identified. Conduct rules apply from this date
Full list of milestones relating to Senior Managers and Certification Regime can be found here.