Today’s announcement by the Financial Conduct Authority that some non-executive directors will fall under the new senior managers regime have come under fire by law firm CMS, however the Treasury Committee has praised narrowing the scope.
This morning (23 February), the Prudential Regulation Authority and the FCA set out how they will hold senior managers in banks, building societies and designated investment firms to account.
Non-executive directors with specific responsibilities will come under the new senior managers regime, although it will not apply to those who do not perform delegated responsibilities.
The roles in scope of the senior managers regime are: chairman, senior independent director, and the chairs of the risk, audit, remuneration and nominations committees.
Simon Morris, financial services partner with law firm CMS, believes the new regime is too tough on non-executive directors, stating there are “countless examples” of non-executives providing constructive oversight and challenging how banks and insurers are run.
He added that it remains to be seen whether affected non-executive directors will be comforted by the PRA’s assurances that they will only act against a non-executive in “limited circumstances”.
The individuals performing these roles will be subject to all aspects of the regime, including regulatory pre-approval, the FCA and PRA’s new conduct rules and the presumption of responsibility.
Mr Morris said: “This is nonetheless a striking change, creating a two-tier board with some NEDs pre-approved and liable to a high standard and the rest only liable to a lesser standard.
“Overall, this is not good news for [non-executive directors] who are in most firms part of the solution and not the problem.
He added that while an ‘ordinary’ non-executive director may breathe a sigh of relief, “chairs will be thinking hard as to whether holding a part-time post is worth the candle in light of spiralling personal liability overseen by increasingly determined regulators.”
However, Andrew Tyrie, chairman of the Treasury Committee, welcomed the FCA’s decision to narrow the scope of the senior managers regime.
Previously the Parliamentary Commission on Banking Standards, which he chaired, concluded that the approved persons regime was a “bureaucratic box-ticking exercise” and should be abolished for banks.
“The FCA’s decision to narrow the scope of the SMR is therefore very welcome, it will ensure that the new regime is tough, but also focused on the right people,” stated Mr Tyrie.
“The regulators now need to exercise judgement in their continuous supervision in order to ensure that the SMR does not inherit the failings of discredited old regime.”
Mr Tyrie added that the approved persons regime should be “scrapped completely”.
“It remains in place, however, for around 75 per cent of the individuals working in the financial services sector – those who work outside of banking and insurance.”
donia.o’loughlin@ft.com
