The UK Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) today (7 July 2015) published what they said are “the final rules confirming the approach to improving individual accountability in the banking sector.” The final rules cover the Senior Managers Regime; the Certification Regime; and new Conduct Rules.
The publication follows joint FCA-PRA final rules on variable remuneration (eg bonuses) in banks, building societies, and PRA-designated investment firms, which were released in June.
Martin Wheatley, Financial Conduct Authority chief executive, commented: “Today we have given clarity on rules that will embed personal accountability into the culture of The City. New conduct rules will add further momentum to improving standards across the industry.”
In June 2013, the Parliamentary Commission for Banking Standards (PCBS) published its report Changing Banking for Good, setting out recommendations for legislative and other action to improve professional standards and culture in the UK banking industry. This was followed by legislation in the Banking Reform Act 2013 to replace the Approved Persons Regime for banks, building societies, credit unions and PRA-designated investment firms with a new regulatory framework for individuals.
While the Senior Managers Regime will ensure that senior managers can be held accountable for any misconduct that falls within their areas of responsibilities, the new Certification Regime and Conduct Rules aim to hold individuals working at all levels in banking to appropriate standards of conduct.
In publishing the final rules, the FCA/PRA statement said, “we are providing information needed by firms as they make progress with their preparations for the new regime.” In particular:
- The Senior Managers Regime focuses on individuals who hold key roles and responsibilities in relevant firms. Preparations for the new regime will involve allocating and mapping out responsibilities and preparing Statements of Responsibilities for individuals carrying out Senior Management Functions (SMFs). While individuals who fall under this regime will continue to be pre-approved by regulators, firms will also be legally required to ensure that they have procedures in place to assess their fitness and propriety before applying for approval and at least annually afterwards.
- The Certification Regime applies to other staff who could pose a risk of significant harm to the firm or any of its customers (for example, staff who give investment advice or submit to benchmarks). These staff will not be pre-approved by regulators and firms’ preparations will need to include putting in place procedures for assessing for themselves the fitness and propriety of staff, for which they will be accountable to the regulators. These preparations will be important not only when recruiting for roles that come under the Certification Regime but when reassessing each year the fitness and propriety of staff who are subject to the regime.
- The Conduct Rules set out a basic standard for behaviour that all those covered by the new regimes will be expected meet. Firms’ preparations will need to include ensuring that staff who will be subject to the new rules are aware of the conduct rules and how they apply to them. Individuals subject to either the SMR or the Certification Regime will be subject to Conduct Rules from the commencement of the new regime on 7th March 2016, while firms will have a year after commencement to prepare for the wider application of the Conduct Rules to other staff.
The FCA said it is also consulting on amendments to the rules in regard to the certification of individuals involved in wholesale activity, such as traders. The change is designed to expand the certification regime to ensure that individuals working in wholesale markets in relevant firms who could pose significant harm to the firm or its customers are subject to the new accountability rules.
- FCA CP15/22 Strengthening accountability in banking: Final rules (including feedback on CP14/31 and CP15/5) and consultation on extending the Certification Regime to wholesale market activities
- PRA Policy statement 16/15: Strengthening individual accountability in banking: responses to CP14/14, CP28/14 and CP 7/15
- The Prudential Regulation Authority and The Financial Conduct Authority announce new rules on remuneration
- Future publications on banking accountability
- Consequential amendments to other parts of the FCA Handbook – summer 2015
- Feedback on incoming branches of foreign firms – Summer 2015 (with the timing of final rules to depend on legislation)
- Final guidance on Presumption of Responsibility and other enforcement-related matters – autumn 2015
- Consultation Paper on regulatory references – autumn 2015 (with final rules to follow in time for commencement of the regime)
- Final rules on the inclusion of wholesale activities in the Certification Regime – in time for commencement of the regime
- Preparing for implementation
- Electronic grandfathering forms become available for submission – Autumn 2015
- Submission deadline for grandfathering notifications – 8 February 2016
- Commencement Date of SMR and Certification Regime – 7 March 2016
- First annual submission notifying breaches of the Conduct Rules required – end October 2016
- Application of Conduct Rules to staff who are not within the SMR or Certification Regime – 7 March 2017
- First annual submission notifying breaches of the Conduct Rules including staff who are not within the SMR or Certification Regime – end October 2017
On 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA). The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.