The certification regime applies to staff employed in positions where they could pose a risk of significant harm to the firm or any of its customers.
Such people do not require individual approval. However, a firm must take reasonable care to ensure that no employee performs any of these functions without having been certified as fit and proper to do so, both at the point of recruitment and on an annual basis.
Finally, new conduct rules were brought into place: high-level principles that reflect the core standards expected of staff who work in relevant firms. They apply to all employees (except those in ancillary functions, eg catering, security).
The Bank of England and Financial Services Act 2016 extended the SMCR to all sectors of the financial services industry. The FCA published the near-final rules that bring in the SMCR for all 47,000 FCA solo-regulated firms in July 2018. The Treasury has announced that these rules will commence for all firms in December 2019.
These measures now complete the legal framework to implement the government and the regulators’ current policy in terms of senior management accountability.
The new approach to enforcement
All that said, a legal framework on its own will not make any difference unless the regulators are willing to use the powers provided.
With new leadership of the FCA’s enforcement division and the FCA’s ‘Approach to Enforcement’ consultation document published in March 2018, all the signs are there that the FCA will be using its powers under the new framework to the full.
When Mark Steward arrived at the FCA from the Hong Kong Securities and Futures Commission as its new director of enforcement, sitting on the top of the pile in his in-tray was Andrew Green QC’s report, commissioned by FCA and PRA, into the FSA’s enforcement actions following the failure of HBoS.
This document contains a scrupulous analysis of the FSA’s processes and decision-making regarding that case. What came under particular scrutiny were the decisions that were taken by FSA enforcement regarding which senior individuals should be put under investigation and why (or why not).
In that report, Mr Green cut to the core of what he saw as the fundamental flaw in the FSA’s approach to the use of its enforcement powers in these circumstances.
Decisions were taken as to whether or not individuals should be put under investigation on the basis of the FSA’s ex-ante assessment of the prospects of success of taking action against those individuals.