Out-Law News | 06 Mar 2015 | 12:29 pm | 2 min. read
The Senior Managers and Certification Regime (SM&CR) will replace the existing senior persons' regime and apply to senior staff in both UK firms and UK branches of foreign firms from 7 March 2016. A new criminal offence will also come into force on this date, through which senior managers in UK banks, building societies and PRA-regulated investment firms whose reckless misconduct causes their firm to fail could face up to seven years in prison. The new offence will not apply to senior managers at credit unions or foreign banks.
"Ensuring that our banks are properly run is vital for the health of our economy," said Andrea Leadsom, the UK government's City minister. "That's why I'm delighted to confirm the next step of the government's work to raise conduct standards in the banking sector, including the new criminal sanctions for reckless misconduct by bankers we are introducing."
"We are determined to make sure that all banks in Britain operate with the highest standards," she said.
Firms will have until 8 February 2016 to notify the regulators, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), of the names of the senior staff they intend to appoint as senior managers under the new regime, according to the announcement.
As recommended by the independent Parliamentary Commission on Banking Standards (PCBS) in July 2013, the SM&CR is part of the UK government's programme of banking reform following the financial crisis of 2008. It consists of a 'senior managers' regime, which would give named senior individuals in banks the responsibility for certain areas of the business; and a 'certification regime' requiring firms to assess the fitness and propriety of staff in positions where the decisions they make could pose significant harm to the bank or any of its customers.
The FCA and PRA published their final rules for senior managers last month. They will apply to non-executive directors (NEDs) with specific responsibilities for aspects of the firm's "safety and soundness" as well as those responsible for the day-to-day running of the firm. Senior managers will be subject to regulatory pre-approval, new conduct rules and a new presumption of responsibility. Senior managers will be held accountable for any breaches in their area of responsibility unless they can demonstrate that they took reasonable steps to avoid or stop that breach.
Senior bankers will also become subject to the new criminal offence of reckless misconduct that leads to bank failure, as established by section 36 of the Banking Reform Act; as well as new remuneration rules designed to increase the alignment between risk and reward. This offence could carry a prison sentence in the most serious cases.
Changes to the Financial Services and Markets Act (FSMA), consulted on by the UK Treasury at the end of last year, will allow foreign banks and investment firms that have UK branches to be classed as 'relevant authorised persons' (RAP) under the new regime. Once classed as a RAP, the PRA and FCA will be able to impose the senior managers' regime on senior managers at these institutions, in respect of their UK activities. The government has now published its response to November's consultation on the proposals.