As you may be aware, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have been in joint consultation in respect of the 'Strengthening Accountability in Banking' initiative. This initiative was launched in response to the Parliamentary Commission on Banking Standards' 2013 report: 'Changing Banking for Good' which addressed not only the perceived loss of public trust in the financial services, following the 2008-2009 financial crisis, but also highlighted that 'serious regulatory failure…contributed to the failings in banking standards' 1.
As a result of this joint consultation, a new regulatory framework came into force in 2016 which applies to all 'relevant authorised persons' under the Financial Services and Markets Act 2000 (as amended and updated), namely: banks; building societies; credit unions; and PRA designated investment firms.
There are various changes contained within the new regulatory framework which are aimed at reviving the public's trust in senior management within the financial services sector, principally by clarifying the accountability and responsibility of senior managers and directors. For example, a senior management regime (SMR) will come into force next month2 which requires various measures to be taken by 'relevant authorised persons', including regulatory approval for certain Non-Executive Directors, an individual 'Statementof Responsibilities' for each senior manager and the implementation of a 'Responsibilities Map' for each firm.
Considerations for HR departments
In-house HR will appreciate the employee relations implications that may arise as a result of the new regulatory framework, particularly in clarifying the duties and responsibilities of senior staff members and directors. We have prepared a checklist of initial exercises which we would recommend employers undertake in light of the new regulatory framework, so as to ensure a cohesive transition:
- Conduct a detailed review of employees' contracts of employment
It is probable that revisions and updates to senior managers' terms and conditions of employment will be required in light of the new regulatory framework. Particular consideration should be given to the assessment of fitness and probity standards of senior individuals; the requirement for ongoing regulatory approval for the duration of the employment relationship; termination provisions; and an assurance from the employee that a 'seamless' handover of duties will be effected upon termination of their employment.
Employers should keep in mind that any variations to contracts of employment should be agreed by the employee before coming into effect. As such, it will be appropriate to carry out a consultation procedure with individuals in respect of any proposed changes to their contracts of employment.
- Review all 'Statements of Responsibilities' and the 'Responsibilities Map'
The SMR emphasises the importance of 'Statement of Responsibilities in respect of senior managers and also firms' Responsibilities Maps. It is imperative that any such documentation is consistent with what is contained within employees' contracts of employment and any job descriptions in place. As such, these documents should be prepared, not only in light of regulatory requirements, but also with consideration of what job descriptions and duties may already be in existence for each employee. Generally, we would recommend that any Statement of Responsibilities and Responsibilities Maps are not contractually binding between employer and employee, so that they may be amended and updated from time to time.
- Review policies and procedures applicable to senior managers' employment
Policies which will be of particular relevance include disciplinary policies; 'handover' policies; and fitness and probity or reporting procedures. The provisions contained within the relevant policies should be reviewed, and where necessary, updated to reflect the new regulatory requirements. Where policies are required to be updated, please bear in mind whether or not those policies form a part of the employee's contract of employment, as any changes would then require prior approval from the employee.
- Provide training to senior employees, and emphasise personal obligations / liabilities
We would also recommend that training is provided to staff, so that the employer may inform staff of their individual responsibilities and personal accountability; responding to any queries from those individuals, particularly in respect of regulatory reporting requirements.