The UK’s Financial Conduct Authority (FCA) has outlined its proposals for extending the Senior Managers and Certification Regime to almost all regulated financial services firms.
New rules are intended to make individuals more accountable for their conduct and competence, reducing harm to consumers and improving market integrity.
Staff members at all levels will be encouraged to take personal responsibility for their actions, and the requirements extend to making sure firms and staff understand and can demonstrate where responsibility lies.
The proposal for the new regime is split into three parts. First, the FCA proposes to introduce five conduct rules applying to all financial services staff.
Individuals must: act with integrity; act with due care, skill and diligence; be open and cooperative with regulators; pay due regard to customer interest and treat customers fairly; and observe proper standards of market conduct.
Second, the responsibilities of senior managers will be clearly set out. In the case of something going wrong in one manager’s area of responsibility, the individual could be personally held accountable.
Senior managers will be approved and registered by the FCA.
Finally, under the certification arm of the regime, firms will provide annual certification for individuals who do not fall directly under the regime, but whose jobs significantly affect customers or firms.
These staff members will be assessed on their fitness, skill and propriety in their roles.
A statement from the FCA noted that the regulator will strive to make the regime proportionate to the size of a firm. A baseline of core requirements will apply to all regulated firms, while extra requirements under an “enhanced regime” will apply to larger and more complex firms.
The statement suggested, however, that the enhanced rules will likely apply to less than 1 percent of firms.
All elements of the new rules will also be rolled out for insurers, which currently adhere to requirements under a revised version of the FCA’s Approved Persons Regime and the Prudential Regulation Authority’s Senior Insurance Managers Regime.
Jonathan Davidson, executive director of supervision for retail and authorisations at the FCA, said: “Culture and governance in financial services and its impact on consumer outcomes is a priority for the FCA. The extension of the Senior Managers and Certification Regime is key to driving forward culture change in firms.”
“This is about individuals, not just institutions. The new conduct rules will ensure that individuals in financial services are held to high standards, and that consumers know what is required of the individuals they deal with. The regime will also ensure that senior managers are accountable both for their own actions and for the actions of staff in the business areas that they lead.”
Commenting on the proposal, Grant Lee, financial services risk and regulation partner at PwC, suggested that the FCA will have to consider how it manages its interactions with such a varied group of firms.
He said: "Firms are already flat-out tackling other regulatory issues such as the second Markets in Financial Instruments Directive, the Insurance Distribution Directive, the Packaged Retail and Insurance-based Investment Products Regulation and the General Data Protection Regulation, let alone managing the uncertainty of Brexit, so the FCA must be pragmatic in its approach, expectations and deadlines.”
Lee added: "The FCA must also be cognisant of the fact that many asset and wealth managers have EU or global footprints, and striking a balance between driving accountability in those who are responsible, without unduly affecting head-office staff is important.”
The proposal follows the FCA’s announcement in October 2015 that it intends to extend the regime to replace the Approved Persons Regime.
Consultation on the proposal will close on 3 November, and a policy statement is expected to be published in Summer 2018.
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