The Senior Managers and Certification Regime marks a shift in the individual accountability of certain employees within the financial services industry. We explore the key aspects of the new regime from the perspective of those employees.
The aim of the new rules is to hold senior individuals to account more easily for failures by financial services firms, including banks, building societies, credit unions and certain investment firms.
Senior managers are those individuals who are performing designated senior functions within such firms who will now require approval by either the Prudential Regulation Authority (PRA) or Financial Conduct Authority (FCA).
In addition, employees carrying out functions which may involve the risk of significant harm to a firm are also required to be certified by the firm as 'fit and proper' on at least an annual basis. It is envisaged that this will be conducted in conjunction with annual appraisals.
Key considerations for individuals
- Statement of Responsibility
Applications for approval of senior managers must contain a statement of responsibility setting out the areas of the firm's regulated activities that each senior manager is responsible for. The senior manager can be subject to enforcement action if they fail to take reasonable steps to prevent a regulatory breach from occurring within their area of responsibility. The drafting of the statement of responsibility will therefore be a key consideration for senior managers seeking to limit their potential exposure.
- Handover Certificates
Where there is a handover of responsibilities between individuals it is likely that a firm will require a handover certificate to be prepared by the outgoing manager, covering the responsibilities they have exercised and any matters which the incoming manager should be aware of. Termination payments may be made contingent on the preparation and accuracy of such certificates. As a result, the drafting of such a document will also be a key issue.
- Employment contract changes
As a result of the new regime, affected employees may find that their employers are requesting changes to their contract of employment to increase the circumstances in which the firm can suspend or dismiss the individual or remove areas of responsibility from them. Changes to contractual terms can only be made with consent or by giving notice to bring the original contract to an end, so again it is important that employees consider and understand the implications of any changes before agreeing to them.
In the event that an investigation is commenced by the FCA or PRA, then again affected employees will be keen to protect their position and ensure that admissions are not made by the firm which could expose them to individual liability.
In addition, the new regime introduces an obligation on firms to inform the relevant regulator if a senior manager fails to meet the fit and proper standard or if disciplinary action is taken against a person as a result of a breach of one or more of the conduct rules. In light of this, affected employees may want to consider whether they can be accompanied by their own legal adviser during any internal disciplinary process.
For key individuals working within financial services industry, the potential implications of the new rules are significant. It would therefore be prudent to obtain their own independent legal advice on what this brave new world of individual accountability will mean for them.