Financial Conduct Authority 

Enter the age of accountability

  • To understand how the Senior Managers and Certification Regime works
  • To learn why there is a need for the SMCR
  • To understand the implications of it for bank culture
CPD
Approx.30min
Enter the age of accountability

The UK’s financial services regulators have for many years said that they mean to hold individuals to account for wrongdoing in financial services.

But those claims have rung hollow when we have seen, year after year, the focus of high-profile enforcement action typically being meted out on corporates whenever there has been systemic wrongdoing in the sector.

In the past five years the Financial Conduct Authority imposed a total aggregate of more than £3bn on firms. It is true that the numbers of prosecutions by the Financial Services Authority (now FCA), for example for insider dealing, have been trending upwards over the past decade.

But the regulatory sanctions (fines and bans) against individuals has not been rising in line with this trend. Significantly, the regulators’ higher aim – to hold senior management to account for systematic failures in firms – has largely eluded them.

Could this all be about to change? For the first time, it appears the stars are in alignment for a radical transformation that will finally make individual accountability real. In the background to the FCA’s current regulatory approach is its loudly voiced ambition to bring about cultural change in the industry.

Key points

  • The FCA wants to bring about cultural change in financial services.
  • The Parliamentary Commission on Banking Standards recommended to hold individuals to account.
  • A firm must take reasonable care to ensure that no employee performs any functions that could pose a risk to the client or firm without having been certified. 

Layered on top of this is the recently introduced (and soon to be rolled out to the whole regulated industry) Senior Managers and Certification Regime (SMCR), creating a new legal framework that makes it easier for the regulators to hold senior managers to account.

Finally, there is the FCA’s new approach to investigations and enforcement, introduced after Mark Stewards’ arrival at the helm of enforcement in late 2015, and coinciding with the publication of a report into the FSA’s handling of the HBoS failure. With these forces all pulling in the same direction, the signs are that we are entering a new era of regulation where senior management accountability is real and will be felt.

Culture

The FCA’s driving ambition to change the culture of the industry forms the backdrop to many of its current regulatory initiatives. 

The financial crisis of 2008 was followed in subsequent years by what is often described as a “conduct crisis”. Still reeling from the shock of the widespread conduct issues that brought about payment protection insurance mis-selling, new scandals emerged in the industry.

This time on the wholesale side; misconduct was revealed across multiple firms in Libor and Forex benchmark setting.  

While commentators may argue over the immediate drivers for these particular conduct scandals, most were agreed on one thing: trust between the industry and consumers had been eroded.  

As far back as 2009, under (Lord) Adair Turner’s leader-ship of the then FSA, the ‘culture’ of the industry became the subject of scrutiny by regulators, parliament and media commentators as being a root cause.

An industry that was perceived as offering conspicuous bonuses on the reward upside with little of the downside risk, and where the consequences of wrongdoing or mistakes end up being shouldered by consumers and taxpayers was destined to attract such scrutiny.

CPD
Approx.30min
  1. What is the intention of the Senior Managers and Certification Regime?

  2. What does the FCA believe lies at the root of conduct failings in financial services?

  3. What did the Commission in Banking find about situations that went wrong?

  4. What must the SMCR prompt firms to do?

  5. Decisions to open FCA investigations are now taken strictly on the statutory test of whether there are “circumstances suggesting” misconduct has occurred. True or false?

  6. Can the FCA afford all these new investigations, without increased efficiencies?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To understand how the Senior Managers and Certification Regime works
  • To learn why there is a need for the SMCR
  • To understand the implications of it for bank culture

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