RegulationDec 3 2015

FCA says ‘don’t just pay lip service’

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FCA says ‘don’t just pay lip service’

The Senior Managers Regime will put an end to financial services firms “paying lip service” to regulatory demands, according to the Financial Conduct Authority’s acting chief executive.

Speaking at yesterday’s (2 December) City & Financial conference on personal accountability in the industry, Tracey McDermott laid out her priorities for the new rules, set to come into force next March.

The first is a clear focus from firms on meeting the spirit of the new rules, rather than approaching this with a narrow focus on what the letter of the law requires.

The second, is that firms must take ownership of the regime and embrace the opportunities it presents for their business.

“On the former, it does appear that the closer we’ve come to implementation, the louder the lobbying has become,” she stated, noting partners from one law firm describing the SMR as ‘draconian’ and leading to a brain drain from the City.

“Really? Is it such a shocking thought that you should understand who is responsible for what in your business,” Ms McDermott responded.

“There is no doubt there is practical complexity in the detailed implementation of the SMR, that is because many of these firms affected have complex businesses.

“But to be clear, the most important conversation firms need to be having is around how that complex, practical implementation can support the principles of the new regime.”

She continued that one of the things that has contributed to the general disillusionment with financial services over the last few years has been the sense that some players, some firms and some individuals always took the fewest steps necessary to comply.

“They paid lip service to what they were asked to do rather than seeking to deliver the best outcome. We cannot let SMR be the same.”

Ms McDermott admitted that implementation of the SMR will be “a massive test”, but if embraced and embedded as an exemplar of good business, rather than just another compliance task, it has the capacity for a sea change in how UK financial services is seen by all parties.

As part of the final rules to make those in the banking sector more accountable, published in July, the FCA 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.

Later that month, the regulator sought to allay fears of the new senior managers and certification regime rules, 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.

However, in mid-October, the Treasury 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.

It was revealed 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.

Ms McDermott stated that more conversations are ongoing, including around the draft rules for foreign branches.

She questioned whether regulators are really better positioned to monitor the day-to-day competence, integrity and behaviour of a firm’s staff, than their line managers.

“It seems to me that firms should already know who their key staff are that can cause them or their customers damage and these people should already be acting appropriately.

“Certification builds on this concept – it doesn’t, or certainly shouldn’t, invent it. And there is no reason why firms can’t work together to ensure that proper references are given.”

peter.walker@ft.com