Update and event invitation

On 13 August, the FCA and PRA published their final and near-final rules on the application of the Senior Managers and Certification Regime (SMCR) to UK branches of overseas banks. (See PRA Policy Statement PS20/15 and FCA Feedback Statement FS15/3.)

The stated objective of the SMCR regime is to “strengthen accountability in the banking sector” – but everyone in the market knows that this is a polite way of saying “making it easier to bring regulatory enforcement action against bankers”. The SMCR will affect UK bank branches to different extents, depending upon whether the overseas bank’s headquarters is located within, or outside, the EEA. This is because of the restrictions placed upon the UK regulators by EU law, which provides that prudential matters are reserved to a bank’s home state regulator, and by the regulators’ own statutory objectives.

Once again, the regulators have produced an assortment of feedback statements, policy statements and Handbook amendments, rather than managing to consolidate their thoughts neatly into a single document. On the plus side, though, where the rules are near-final, this is simply because the secondary legislation which will bring UK branches of overseas banks within the scope of the regime has not yet been passed – so we are told not to expect any substantial changes the scope of the regime between now and commencement publications (although numerous further guidance papers are expected).

We have distilled last week’s publications into 4 key points each for UK branches of non-EEA banks and for UK branches of EEA banks, together with one key point that spans both categories:

For UK branches of non-EEA banks:

  • Following its earlier consultation, the PRA has decided to make no changes to the list of Senior Management Functions (“SMFs”) it had previously proposed.
  • Likewise, the scope of the PRA’s certification regime and conduct rules has not been changed following consultation.
  • By contrast, the FCA’s list of SMFs has been tweaked. The previously confusing “Overseas Branch Senior Management Function” has been split into two functions, the Executive Director function (SMF3) and the “Other Local Responsibility” function (SMF22), a sweep-up function which is broadly equivalent to SMF18 for UK banks. In creating SMF22, the FCA has added to the complexity of the regime for non-EEA banks by introducing a new “junior Senior Manager” category of person who is a Senior Manager in name, but who will not be allowed to be allocated any Prescribed Responsibilities under the new regime except for the CASS Oversight FCA Prescribed Responsibility.
  • The PRA has tweaked its list of Prescribed Responsibilities (and to its credit has provided a blackline showing exactly what has changed from the previous proposals). In particular, we note that the Prescribed Responsibility relating to whistleblowing has been scrapped, pending a decision by the regulators as to how widely its new whistleblowing regime should be implemented.

For UK branches of EEA banks:

  • The FCA has clarified the scope of the SMCR for EEA banks that operate in the UK via a combination of establishment and services passports. The FCA has explained that firms with a UK branch that carry out one or more regulated activities via an establishment passport will be within scope of the SMCR if they carry out the regulated activity of deposit-taking, even if they are carrying out their deposit-taking activity on a cross-border services basis (rather than using an establishment passport). This could be seen as counter-intuitive, and therefore may not have been obvious to affected firms before last week’s publication.
  • The FCA has produced some helpful new guidance on the definition of the “EEA Branch Senior Manager” (EBSM) function. The FCA has emphasised that not all individuals who are currently approved as CF29 (Significant Management) will need to be grandfathered across to the EBSM function. Some worked examples provided by the FCA in its Feedback Statement FS15/3 will assist EEA-incorporated banks in working out which individuals with local management responsibility in the UK fall within the scope of the new regime.
  • The FCA has set out detailed guidance on the purpose of the Responsibilities Map in respect of UK branches of EEA banks, and the level of detail that it needs to contain.
  • The FCA has also produced new guidance on the identification of “significant harm” functions, for which staff will need to be certified fit and proper on an annual basis.

For all UK branches of overseas banks – clarification regarding remote booking

  • The FCA has clarified the position where transactions are booked remotely via a UK branch. Firms had worried that, where an SMF-holder was given responsibility for transactions that were booked in the UK but fulfilled abroad, this could lead to unfairness if the SMF-holder were held accountable for processes over which he or she had no control. The FCA has clarified that, in these circumstances, the SMF-holder’s responsibilities are limited to the booking of the transaction, rather than its fulfilment.