FCA to toughen up approved persons regime

The Financial Conduct Authority has rejected calls to extend a tough new ‘senior persons regime’ for bankers across the financial services industry but has proposed toughening up the existing approved persons regime by introducing a set of ‘individual standards’ rules.

The new regime would include new criminal sanctions for reckless misconduct by senior bank staff and will “set expectations” for senior staff rather than simply acting as an “initial gateway”.

In its response to the Parliamentary Commission on Banking Standards report, the FCA today (8 October) backs government proposals for a new ‘senior persons regime’ but said this will be in addition to and not replacing the approved persons regime.

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The FCA states the new ‘senior persons regime’ will become an “integral part” of its approach across its authorisation, supervision and enforcement functions.

The watchdog adds it will work with deposit-taking institutions to ensure that senior persons have “clear roles and responsibilities, not just at authorisation stage but throughout their careers”.

It will consider whether aspects of the new ‘senior persons regime’ should be incorporated into its existing approved persons framework, in response to calls from the government and others across the industry that it replaced the existing “failed” processes.

In addition to the ‘senior persons regime’, the FCA supports the recommendation for ‘licensing’ arrangements based on as set of ‘individual standards rules’ which apply to a wider population of employees than are covered by the current approved persons regime.

The FCA will consult on whether a set of ‘individual standards rules’ would apply not just to senior persons but to a “wider population of employees”.

Pre-approval for individuals solely covered by the ‘individual standards rules’ will not be given, the FCA says, as it agrees with the Banking Commission that banks should not pass their duties and responsibilities on to the regulator or professional bodies.

The recommendations will mean that banks must take more responsibility for the conduct of a wider range of their staff, the FCA warns.

Pre-approval will be introduced for senior persons and will remain for approved persons but will not be extended to the wider population of employees covered by the new conduct rules, the FCA adds.

The Bank of England said in its response to the commission that it believed the ‘senior persons regime’ will be within the separate ‘licensing’ arrangements, intended to “provide the basis for upholding individuals’ standards of behavioiur”.

The senior persons may be subject to additional rules and the Prudential Regulation Authority will consult with the industry before determining who these standards should apply to. The key for the PRA will be to “identify those roles” that can directly affect the firm’s “safety and soundness”.

Andrew Tyrie, chairman of the Commission on Banking Standards said: “Banks are not the only institutions to have suffered from serious lapses. So did regulators.

“The vigour with which the new regulators embrace the Banking Commission’s proposals - which give them new powers as well as new responsibilities - will be a litmus test of the extent to which they are putting these lapses right.”