The U.K.’s financial industry regulatory agencies have been actively reviewing and revising their oversight of financial firms. Last week, the Financial Conduct Authority (“FCA”) and the Prudential Regulation Authority (“PRA”) jointly issued two consultation papers aimed at improving individual responsibility and accountability in banks. In “Strengthening accountability in banks: a new regulatory framework for individuals,” the PRA and FCA proposed a new “Senior Managers Regime” which would clarify the lines of responsibility at the top of banks, enhance the regulators’ ability to hold senior individuals in banks to account and require banks to regularly vet their senior managers for fitness and propriety. The consultation also proposes a “Certification Regime” which would require firms to assess fitness and propriety of staff in positions where the decisions they make could pose significant harm to the bank or any of its customers; and new “Conduct Rules” which would set forth statements of high level principle and set out the standards of behavior for bank employees.
In the second joint consultation, “Strengthening the Alignment of Risk and Reward: New Remuneration Rules,” the PRA and FCA proposed increasing the alignment between risk and reward over the longer term, by requiring firms to defer payment of variable remuneration for a minimum of five or seven years depending on seniority, with a phased approach to vesting; enhancing the ability of firms to recover variable remuneration, even if vested; and strengthening the existing presumption against discretionary payments where banks have been bailed out.
Comments on either consultation should be submitted on or before October 31, 2014. Separately, the PRA also published final rules on clawback which introduce a seven-year minimum period for clawback from the date of award. These rules are effective January 1, 2015.
On July 31st, the FCA presented the results of its review of firm best execution and payment for order flow policies and practices. The review found that best execution is not being delivered to all clients on a consistent basis and that a number of firms continue to evade FCA rules and requirements on payment for order flow. The FCA will be contacting each of the firms reviewed to provide individual feedback on the FCA’s findings. The FCA will require deficient firms to take immediate action to address all relevant areas of concern. FCA Press Release.
Last week the FCA also released the results of its study of whether financial rewards encourage whistleblowing. It concluded that the use of whistleblower rewards would not lead to an increase in the number or the quality of information reported.
Earlier in July the FCA issued a consultation on proposed standards for the implementation of the Guidance Service that would assist individuals as they make retirement income decisions. Comments should be submitted on or before September 22, 2014. It also proposed guidance to help clarify the different types of retail investment sales models. Comments on this consultation should be submitted on or before October 10, 2014.
And last Friday, the FCA published proposed changes to its Handbook that would implement the E.U.’s Recovery and Resolution Directive into the U.K. regulatory regime for the investment firms and certain group entities that are regulated by the FCA. Among other things, the proposal addresses the requirements for recovery plans, the requirements and conditions for providing a failure notification, the conditions for intra-group financial support, and the metrics for making determinations.