The FCA and PRA have taken their most significant step to date in the relentless pursuit of greater accountability of senior management and the promotion of good governance and culture.
The Treasury announced on 3 March that the commencement date for the new and much anticipated Senior Managers and Certification Regime (SM&CR) will be 7 March 2016. Transitional documentation will need to be submitted to the regulators by 8 February 2016. Simultaneously, the FCA announced its plans to publish a road map later this month and reaffirmed its aim to strengthen the accountability of senior management in the banking sector.
The new Senior Managers regime is not just restricted to the banking sector. As outlined in Jonathan's blog and emphasised in the FCA's consultation paper CP15/5 - which sets out the regulators' revised approach to independent NEDs – the firms that will be affected by this change to the current approved persons regime are: UK banks, building societies, credit s and PRA-designated investment firms and Solvency II firms. The PRA, in particular, appears to be driving the change to the existing Approved Persons Regime (APR) – perhapsunderstandably given its ownership of Solvency II.
Under the revised approach, NED roles that will fall within the scope of the new Senior Management Regime (SMR) are: the Chairman, the Senior Independent Director, and the Chairs of the Risk, Audit, Remuneration and Nominations Committees. These individuals will be subject to pre-regulatory approval whereas any NED roles outside of these functions will not require regulatory approval, nor be subject to the new conduct rules or the presumption of responsibility. Those individuals who fall within the regime will be more accountable for the function of the business for which they are responsible.
Whilst the drive towards more individual and personal accountability is consistent with the regulators' focus on improving industry standards, have they taken into account the detrimental impact that the proposed new rules could have on the competitiveness of the UK? If the regulatory spotlight on senior management becomes too overbearing and disproportionate to the potential rewards, the City of London's world-leading reputation and competitiveness within the financial services industry may suffer as it struggles to attract high-calibre individuals. We query therefore if there is merit in an industry reaction which challenges such proposals. Indeed, the new regime is arguably in conflict with the spirit of the Regulators' Code which revealed the focus of the Government's push on economic growth.
Comments on the FCA and PRA proposals set out in CP15/5 must be submitted to both regulators by 27 April 2015. We will monitor the industry reaction with interest.