UK plans to extend senior bankers' conduct regime to UK branches of foreign banks

Out-Law News | 19 Nov 2014 | 10:24 am | 1 min. read

The conduct of senior managers at UK branches of foreign banks would be subject to greater scrutiny under plans outlined by the UK government.

The Treasury has opened a consultation on proposed new regulations which, if introduced, would allow "the new regime for regulating individual conduct in banking" to be extended to senior managers at UK branches of foreign banks.

Under its plans, a new Financial Services and Markets Act (FSMA) 2000 (Relevant Authorised Persons) Order 2015 would be created, with the purpose of classifying foreign banks and investment firms that have UK branches as 'relevant authorised persons' (RAP) under the existing FSMA.

An RAP classification would ensure that new rules to govern the conduct of senior managers at those institutions can be imposed by UK regulators the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA).

The PRA and FCA already outlined plans to regulate the conduct of individuals at UK banks and investment firms earlier this year.

Under their proposed 'Senior Managers Regime', senior individuals in banks would take on responsibility for their decisions and become subject to regular assessments of fitness and propriety. The accompanying 'Certification Regime' the regulators have also proposed would require 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. This two-tier authorisation regime would be backed by a new set of conduct rules setting out standards of behaviour for bank employees.

The PRA and FCA's consultation on its proposals closed at the end of October but the final framework is not expected to be set until early next year.

The Treasury's proposals would ensure that a similar framework can be applied to senior managers at UK branches of foreign banks.

"This step has been long mooted - particularly following the exposure of UK deposit holders to the fallibility of certain foreign banks and their UK branches during the financial crisis," banking law expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com, said. "It brings such branches closer in alignment with the conduct regulation imposed on UK financial institutions or foreign subsidiaries of financial institutions."

The Treasury said that senior managers at UK branches of foreign banks would not, under its proposals, be able to be held liable for the 'bank failure' offence under the UK's Financial Services (Banking Reform) Act.

Under the Act it is an offence, punishable by possible imprisonment and/or a fine, for senior managers at banks to take or agree to decisions that they know could cause a bank to fail and which ultimately causes such a failure if their "conduct in relation to the taking of the decision falls far below what could reasonably be expected of a person in [their] position".