New PRA regime set to ‘increase and enhance’ its powers

Steps such as the ‘senior persons regime’ are part of a movement to “enhance and increase the powers of the PRA,” according to James Smethurst, partner at law firm Freshfields Bruckhaus Deringer LLP speaking at a Prudential Regulation Authority conference this morning.

The proposed senior persons regime which will replace the approved persons regime. It seeks greater responsibility for those in senior management positions in financial services, and works alongside a new criminal offence of reckless misconduct.

Mr Smethurst focused heavily on the culture and behaviour of financial institutions with regards to the senior persons regime. He referenced “the Flowers effect” and the fact that there was a prevailing public sense that the current financial system is not fit for purpose.

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Prompted in part by the collapse of Barings, the senior persons regime aims to answer to these concerns and to tighten up issues of accountability in banks and investment firms. He indicated there would be “more intrusive supervision of the largest firms” with a particular focus on senior management.

The Parliamentary Committee on Banking Standards wants such regulation to resolve the “heads on spikes” problem in banking where many believe the accountability process is lacking. “We have not seen enough people helped to account under the current system,” he said, and referenced public perception of those in senior positions being protected by “an accountability firewall.”

The regime focuses on ongoing appropriateness of senior persons, and the PRA can impose conditions on approval and can vary the approval or the conditions under which approval was given over time. Initially it will only apply to banks and large investment firms, but the government will consider increasing its reach.