Senior managers need to get ready for responsibility
03 December 2015 London
Image: Shutterstock
Firms should take practical steps to prepare for the senior managers’ regime (SMR) before it is implemented in March, said Tracey McDermott acting CEO of the FCA, in a speech to the City & Financial conference on personal accountability in financial services.
McDermott stressed that large firms need to clearly allocate the responsibilities of senior management, look at the way different entities of the business are linked, what each entity does, and how significant they are.
She added that responsibilities should be allocated to individuals in senior management positions, for example, the responsibilities of countering financial crime and training other senior staff. There should also be a record of which responsibilities are allocated to whom, in order to create clarity around operations in practice.
Firms should be focusing on the “spirit of the rules,” McDermott said, rather than simply following the rigid lines of the law, while also taking ownership of the regime, embracing what it could mean for their business in practice.
She said: “There is no doubt there is practical complexity in the detailed implementation of the SMR. That is because many of these firms affected have complex businesses.”
“But to be clear … the most important conversation firms need to be having is around how that complex, practical implementation can support the principles of the new regime.”
She added: “In the spirit of tasting our own medicine, we are in the process of applying the SMR to ourselves.”
She continued to say that firms should not lose momentum in implementing the new regime, and suggested that the firms themselves could be better placed to identify misconduct and should be addressing these issues themselves, without being pushed by regulators.
She asked: “Is there really a case to say that regulators are better positioned to monitor the day-to-day competence, integrity and behaviour of a firm’s staff, than their line managers?”
Firms should already know who their key staff members are, and those individuals should act responsibly and appropriately. Certification should build on this concept, McDermott said, “it doesn’t, or certainly shouldn’t, invent it”.
The SMR has “emerged from a very troubled period for the financial services industry”, McDermott said, and it aims to change the culture, encouraging personal responsibility, and a sustainable regulatory model.
She said: “Finance too often became disconnected from the world in which it operated and the people it was supposed to serve.”
However, she also stressed that the success of the SCR will not necessarily mean that misconduct within financial services will stop altogether, rather that it will be identified within firms instead of by regulators, and by those “working on the front line”, instead of those in compliance and legal departments.
Employees from all areas of financial services organisations should be motivated to report misconduct consistently, and as a matter of course.
McDermott said: “The measure [of success] should not be ‘no misconduct’. I think this would be unrealistic. Things will go wrong and in financial services, as in any other industry, there will always be rogues.”
She concluded that on successful implementation: “The prize for all of us in that will be a vibrant and innovative financial services sector, underpinned by a strong sense of accountability, that aims to build and maintain the trust and confidence of society, and is thus able to meet society’s needs.”
McDermott stressed that large firms need to clearly allocate the responsibilities of senior management, look at the way different entities of the business are linked, what each entity does, and how significant they are.
She added that responsibilities should be allocated to individuals in senior management positions, for example, the responsibilities of countering financial crime and training other senior staff. There should also be a record of which responsibilities are allocated to whom, in order to create clarity around operations in practice.
Firms should be focusing on the “spirit of the rules,” McDermott said, rather than simply following the rigid lines of the law, while also taking ownership of the regime, embracing what it could mean for their business in practice.
She said: “There is no doubt there is practical complexity in the detailed implementation of the SMR. That is because many of these firms affected have complex businesses.”
“But to be clear … the most important conversation firms need to be having is around how that complex, practical implementation can support the principles of the new regime.”
She added: “In the spirit of tasting our own medicine, we are in the process of applying the SMR to ourselves.”
She continued to say that firms should not lose momentum in implementing the new regime, and suggested that the firms themselves could be better placed to identify misconduct and should be addressing these issues themselves, without being pushed by regulators.
She asked: “Is there really a case to say that regulators are better positioned to monitor the day-to-day competence, integrity and behaviour of a firm’s staff, than their line managers?”
Firms should already know who their key staff members are, and those individuals should act responsibly and appropriately. Certification should build on this concept, McDermott said, “it doesn’t, or certainly shouldn’t, invent it”.
The SMR has “emerged from a very troubled period for the financial services industry”, McDermott said, and it aims to change the culture, encouraging personal responsibility, and a sustainable regulatory model.
She said: “Finance too often became disconnected from the world in which it operated and the people it was supposed to serve.”
However, she also stressed that the success of the SCR will not necessarily mean that misconduct within financial services will stop altogether, rather that it will be identified within firms instead of by regulators, and by those “working on the front line”, instead of those in compliance and legal departments.
Employees from all areas of financial services organisations should be motivated to report misconduct consistently, and as a matter of course.
McDermott said: “The measure [of success] should not be ‘no misconduct’. I think this would be unrealistic. Things will go wrong and in financial services, as in any other industry, there will always be rogues.”
She concluded that on successful implementation: “The prize for all of us in that will be a vibrant and innovative financial services sector, underpinned by a strong sense of accountability, that aims to build and maintain the trust and confidence of society, and is thus able to meet society’s needs.”
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