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

To this day, the belief that cultural problems lie at the root of the major conduct failing in financial services remains the cornerstone for the FCA’s approach to regulation.

This much is clear from a discussion paper published by the FCA in March this year, ‘Transforming Culture in Financial Services’.

The fact that the FCA decided to approach this subject though publishing a discussion paper comprising essays on culture from a wide variety of contributors (industry, regulators and academics) suggests they are still some way from decidingon the best regulatory interventions that will bring about cultural change. However, there is one clear pointer towards how the FCA approaches the issue. 

In describing the fundamental concepts that underpin the FCA’s thinking about culture and regulation, Jonathan Davidson, the FCA’s director of supervision, says: “The first [concept] is that regulation has to hold the individuals as well as the firm to account….From start-ups to large corporations, clear accountability for individuals is fundamental.”

The SMCR

In the meantime, parliament felt the need to give the regulators a steer in the right direction. Following the Libor rate-rigging scandal, the Parliamentary Commission on Banking Standards was appointed to conduct an inquiry into professional standards and conduct in the UK banking sector.

The commission’s report in 2013, Changing Banking for Good, made multiple recommendations. A key area for the recommendations was holding individuals to account.

The commission concluded that many bankers, particularly at senior level, had been allowed to operate with very little personal accountability. When things went wrong, individuals claimed ignorance or hid behind collective decision-making, and there was often little realistic prospect of enforcement action.

The commission made several recommendations for improving accountability. This included a framework for individuals with a senior managers’ regime and a set of conduct rules for all people employed in banks.  

It also made several recommendations designed to cut through the ‘accountability firewall’ so that tough penalties could be imposed on individuals.

The commission’s recommendations were broadly accepted by the FCA. The government used the Financial Service (Banking Reform) Act 2013 to implement the recommendations into law.

This brought into effect the SMCR only for banks and certain large Prudential Regulation Authority (PRA)-regulated investment firms.  

The key features of the SMCR are that firms must clearly allocate responsibilities to ensure there is an individual senior manager accountable for every aspect of regulated activities within relevant firms.

All applications for approval as a senior manager at a relevant firm must contain a ‘statement of responsibilities’.  

Every firm must have in place a ‘management responsibilities map’ to describe their management and governance arrangements. Under the new ‘duty of responsibility’, the FCA and the PRA can take action against senior managers if they have not taken reasonable steps to avoid a contravention occurring in their area of responsibility.

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  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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