FCA clarifies accountability rules for overseas banks
14 August 2015 London
Image: Shutterstock
The UK’s Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have announced draft rules for how the new senior management accountability regime will apply to UK branches of overseas banks.
Rules for the senior management regime (SMR) in the UK were published on 7 July. The regime intends to make senior managers accountable for any misconduct in their area of responsibility, while the certification regime and conduct rules are designed to ensure that individuals at all levels maintain a certain standard of conduct.
Changes applying to UK branches of foreign banks intend to minimise the potential for arbitrage between UK-based and foreign banks, which could pose a risk of misconduct in the UK.
For branches in the European Economic Area, the proposed rules separate ‘home’ and ‘host’ state responsibilities under the relevant market directives. The SMR will only apply to activities in relation to UK establishments, and UK activities will be subject to an establishment passport.
EEA firms will fall under the definition of a relevant authorised person under the draft treasury order. The UK firm will be subject to SMR and the wider accountability regime, however, as EEA firms’ activities are regulated by the PRA, they will now be dual-regulated.
These branches will also be exempt from placing their head of compliance forward for approval, as this is already granted in the home state.
For non-EEA branches, the FCA identified two types of individuals in UK branches that the rules will affect; executive directors, and those with ‘other local responsibility’.
The ‘executive director’ functions of the SME will only apply to senior managers in relation to one branch, rather than in relation to the whole firm. The ‘other local responsibility’ function will encompass anyone that has a management or business responsibility but is not approved to perform any other senior management functions.
Splitting these functions for non-EEA firms is intended to provide more clarity on senior managers’ roles, and the applicable rules.
The proposal also suggests that in situations where strategic changes are being implemented by the firm as a whole, senior managers operating in the UK should have the authority to either implement the strategy in the UK, or challenge the proposal.
A policy statement finalising the rules is expected before the end of the year, and they are scheduled to come in to force in March 2016.
Rules for the senior management regime (SMR) in the UK were published on 7 July. The regime intends to make senior managers accountable for any misconduct in their area of responsibility, while the certification regime and conduct rules are designed to ensure that individuals at all levels maintain a certain standard of conduct.
Changes applying to UK branches of foreign banks intend to minimise the potential for arbitrage between UK-based and foreign banks, which could pose a risk of misconduct in the UK.
For branches in the European Economic Area, the proposed rules separate ‘home’ and ‘host’ state responsibilities under the relevant market directives. The SMR will only apply to activities in relation to UK establishments, and UK activities will be subject to an establishment passport.
EEA firms will fall under the definition of a relevant authorised person under the draft treasury order. The UK firm will be subject to SMR and the wider accountability regime, however, as EEA firms’ activities are regulated by the PRA, they will now be dual-regulated.
These branches will also be exempt from placing their head of compliance forward for approval, as this is already granted in the home state.
For non-EEA branches, the FCA identified two types of individuals in UK branches that the rules will affect; executive directors, and those with ‘other local responsibility’.
The ‘executive director’ functions of the SME will only apply to senior managers in relation to one branch, rather than in relation to the whole firm. The ‘other local responsibility’ function will encompass anyone that has a management or business responsibility but is not approved to perform any other senior management functions.
Splitting these functions for non-EEA firms is intended to provide more clarity on senior managers’ roles, and the applicable rules.
The proposal also suggests that in situations where strategic changes are being implemented by the firm as a whole, senior managers operating in the UK should have the authority to either implement the strategy in the UK, or challenge the proposal.
A policy statement finalising the rules is expected before the end of the year, and they are scheduled to come in to force in March 2016.
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