FCA confirms 'proportionate' application of extended senior managers' regime

Out-Law News | 09 Feb 2017 | 2:47 pm | 2 min. read

The Financial Conduct Authority (FCA) intends to extend its accountability rules for senior staff to the rest of the financial services sector in a way that is "clear, simple and proportionate", its head of conduct has said.

Speaking at an industry conference in London, David Blunt said that the regulator would keep the "diversity" of the firms that it regulates when the Senior Managers and Certification Regime (SMCR) is extended beyond deposit-takers in 2018. The FCA would "consult widely" with various firms and trade associations on the development of its final proposals, as well as the proposals themselves, Blunt said, in comments carried by Complinet.

The SMCR, which came into force on 7 March 2016, was designed to make it easier for the regulators to hold senior individuals within banks personally accountable for failings on their watch. A separate Senior Insurance Managers Regime (SIMR) applies to insurers. The rules are due to be extended to all regulated financial firms, including asset management and investment firms, from 2018.

Steven Cochrane, a financial services employment law expert at Pinsent Masons, the law firm behind Out-Law.com, said that proportionality was a "key concern" for firms ahead of the extension of the regime, particularly around "how the regulator will introduce the regime in an effective, proportionate and workable way to such a large and diverse group of firms".

"Whereas at the moment, the regime applies largely to banks and building societies, going forward a diverse group of firms will be captured," he said. "These firms are very different, for example in terms of size, systemic risk profile and regulatory complexity, and a 'one size fits all' approach to SMCR implementation would be ineffective and potentially dangerous."

The new rules for senior managers require firms to identify and allocate their senior management functions to named senior managers, and to clearly set out each senior manager's specific responsibilities in a 'statement of responsibility'. They must also produce an overall 'management responsibility map' describing the structure, size and complexity of the firm, including management and governance arrangements.

The certification regime requires firms to assess the fitness and propriety of staff in certain roles.

"Firms should take a good measure of comfort in the fact that the FCA has been very clear that this notion of proportionality is front and centre of their mind when looking at rolling out SMCR across the sector," said Ellie Okereke, a financial services employment law expert at Pinsent Masons. "It isn't yet clear what a lighter touch regime would look like in practice but it may, for example, mean far fewer prescribed senior management functions and shorter governance maps and responsibility statements," she said.

In a recent speech, FCA head of enforcement Mark Steward said that the SMCR was creating a "different dynamic" with regards to enforcement. The prospect of personal accountability for their senior management meant that firms were now less likely to agree to early settlement, which in turn would lead to "more contest and more litigation", he said.