Today 8 February marks the first stage in the introduction of the Senior Managers and Certification Regime. This regime applies to all individuals exercising a senior management function. 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.
Although 7 March 2016 is the key date for entry into force of the regime designed to improve accountability for individuals working in financial services, a number of steps needed to have been taken by today to meet certain requirements. The UK’s Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are requiring 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.
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, completed by today. Firms needed to ensure that all Senior Managers are pre-approved by the regulators before carrying out their roles. A “grandfathering” regime has been put in place to ensure that existing Approved Persons can proceed directly into the regime without have to undergo a fresh-round of approval. Again, today is the date at which any such arrangements needed to have been put in place.
Under this regime ,there will be 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. It is important that in setting out these Responsibility Maps and agreeing Statement of Responsibilities, firms have fairly assessed the responsibilities of their employees and that the exact extent of their remit is acknowledged and clearly defined. It is important that an individual has not been allocated responsibilities outside the scope of their duties, either in their individual statement of responsibility or the firm’s overall responsibilities map. Individuals affected would be well advised to ensure that they have D&O insurance or a similar indemnity from their employer.
The FCA will be carefully monitoring how firms implement the new regime and it will ultimately impact on their regulatory risk in the future.