The Treasury has reportedly u-turned on plans which would have imposed a guilty until proven innocent burden as part of a proposed new senior managers and certification regime.
FTAdviser parent paper the Financial Times stated that senior managers across financial services will have a statutory duty of responsibility to take all appropriate steps to prevent a regulatory breach from occurring, but it will be up to the City watchdog to prove that such steps were not followed.
Michael Ruck, a senior financial services enforcement lawyer at Pinsent Masons and formerly with the Financial Conduct Authority, commented that while many in the banking industry are likely to consider the removal of the reverse burden of proof a weight removed from their shoulders, “it is too early at this stage to breathe a sigh of relief”.
However, the approach likely to be taken by regulators in assessing whether they have taken all appropriate steps to prevent a breach from occurring will no doubt be a high bar to clear, added Mr Ruck.
“The mindset of the regulators will likely continue to be that if a failing occurs on the watch of a senior management individual, that individual will face tough questioning around the steps they took to prevent such a failing.”
Responding to reports about the Treasury’s intention to extend and make changes to the senior managers’ regime, Tracey McDermott, acting chief executive of the FCA, said that its extension is an important step in embedding a culture of personal responsibility throughout the financial services industry.
“While the presumption of responsibility could have been helpful, it was never a panacea. There has been significant industry focus on this one, small element of the reforms, which risked distracting senior management within firms from implementing both the letter and spirit of the regime.
“The senior managers’ and certification regime is intended to deliver better decisions to help avoid problems arising,” she continued, adding that the FCA remains committed to holding individuals to account where they fail to meet our standards.
Earlier this summer, the FCA attempted to allay fears around the regime by setting out the circumstances it would seek to apply the new regime and the steps that a senior manager should take to rebut it.
In final rules to make those in the banking sector more accountable, published on 7 July, the regulator warned the certification regime may cause a two-tier system between those financial advisers who are subject to the new certification regime because they are employed by banks and those who remain subject to the ‘approved persons regime’ because they work for financial advisers.
peter.walker@ft.com
