There is an enormous risk that the new ‘senior managers’ regime will fail to meet its objective, law firm Herbert Smith has said.
A tough new authorisation and certification regime for senior executives and managers across the banking sector will start in March next year. Senior managers in banks, building societies and designated investment firms will be directly held to account if the businesses fail.
At the time, Financial Conduct authority chief executive Martin Wheatley, 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.”
Speaking to FTAdviser, Jenny Stainsby, partner at law firm Herbert Smith Freehills, agreed that the regulatory objective of the new regime is “hard to disagree with”, as it is encouraging individual accountability if things do go wrong.
She added that in order to establish a regime which is effective and applied consistently across the industry, regulators must engage with larger institutions to understand the challenges they face - particular due to complex international structures - and provide relevant guidance.
“If they don’t, there is enormous risk of the new regime failing to meet its objective and instead replicating the weaknesses of the current regime, which the Parliamentary Commission on Banking Standards described as a ‘complex and confused mess’.”
Simon Morris, partner at law firm CMS, said that the FCA’s dealing with the new regime cannot be changed as it now written into statute.
“The boat has been spectacularly missed,” he commented. “The statute is clear that each bank is regulated on an individual basis and each bank has the responsibility to appoint a senior manager; this is all now set in stone.”
He suggested that this will cause problems if the firm is a global institution, giving an example that a head of finance in the UK could be the ‘senior manager’, however it is likely they will need authorisation from a head of global finance not based in the UK.
“This is the reality. We have got to make sure the regulator recognises the limits of responsibility that people have. They are open to this as they want to have a system where banks get it right. “
Mr Morris added the other issue is the ‘statement of responsibilities’ - a key document in defining the scope of a senior person’s responsibilities and therefore potential liability.
As it currently stands, the statement has a 300-word limit and cannot be linked to other documents, adding that a “matrix-manager” would want to cross-reference with other documents as to how they are answerable.”
donia.o’loughlin@ft.com
