The Prudential Regulation Authority and Financial Conduct Authority have set out how they will hold senior managers in banks, building societies and designated investment firms to account.
Non-executive directors with specific responsibilities, such as chairmen, will come under the new senior managers regime.
The regime will not apply to those non-executive directors 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.
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.
Those non-executive directors who fall outside of the regime will no longer be subject to regulatory pre-approval, the conduct rules nor the presumption of responsibility.
The regulator pointed out that senior executives are in a position to exercise a strong influence on their businesses and culture through incentives and the messages that they give to staff.
This clear line of accountability can have a positive effect on firms and on outcomes for consumers and markets, the regulator said.
Martin Wheatley, chief executive of the FCA, said that having a narrow senior managers regime will also allow regulators to focus resources on those responsible for key business areas and board committees.
He said: “We want those senior individuals to be held accountable for the decisions they make and oversee; this is what people inside and outside the banking sector expect.”
The FCA plans to publish a consultation on guidance on what may constitute reasonable steps and the application of the presumption of responsibility under the regime in the coming months.
Andrew Bailey, deputy governor for prudential regulation at Bank of England and chief executive of the PRA, said: “Senior managers will be held individually accountable if the areas they are responsible for fail to meet our requirements.
“Our new accountability regime will hold all senior managers, including non-executive directors, to a clear standard of behaviour and we will take action where they fail to meet this.”
The PRA and FCA also set out a package of measures to formalise firms’ whistleblowing procedures.
These proposals aim to ensure that all employees are encouraged to blow the whistle where they suspect misconduct, confident that their concerns will be considered and that there will be no personal repercussions.
Neil O’May, partner at law firm Norton Rose Fulbright, precited that fines for breaches may be substantially increased and the ability of the regulators to enforce the penalties will be far easier now that senior managers must prove he or she did everything practicable to prevent losses by the firm.
“Coupled to the new criminal offence of reckless banking applicable to all directors, the new regime will cause some trepidation in board rooms.”
peter.walker@ft.com
