Shifting the focus to individual accountability and fostering cultural change within the financial services sector has taken a center stage within the regulatory agenda. On 7 July 2015, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have published the final rules on the approach to improving individual accountability in the banking sector. These final rules cover:
- Senior Managers Regime
- Certification Regime
- New Conduct Rules
1) Senior Managers Regime
The Senior Managers Regime focuses on individuals who hold key roles and responsibilities in relevant firms. For the relevant firms, this will involve allocating and mapping out responsibilities and preparing Statements of Responsibilities for individuals carrying out Senior Management Functions (SMFs). While individuals who fall under this regime will continue to be pre-approved by regulators, firms will also be legally required to continuously monitor the propriety and fitness of the individuals who carry out SMFs.
2) Certification Regime
The Certification Regime applies to other staff who could pose a risk of significant harm to the firm or any of its customers. The relevant firms will need to include putting in place procedures for assessing the fitness and propriety of staff, for which they will be accountable to the regulators. These preparations will be important not only when recruiting for roles that come under the Certification Regime but also when reassessing each year the fitness and propriety of staff who are subject to the regime. In practical terms, the Certification Regime will bring a much wider group of individual employees within the scope of the FCA and PRA.
3) New Conduct Rules
The Conduct Rules set out a standard for behavior for all those covered by the new regimes. The relevant firms will need to ensure that staff who will be subject to the new rules are aware of the conduct rules and how they apply to them. Individuals subject to either the SMR or the Certification Regime will be subject to Conduct Rules from the commencement of the new regime on 7 March 2016, while firms will have a year after commencement to prepare for the wider application of the Conduct Rules to other staff.
For more information on how Kinetic Partners, a Division of Duff & Phelps, can help your firm respond to the challenges of these new regimes, please read our brochure on ‘Restoring confidence through cultural change. Focus on Part 4 of The Financial Services (Banking Reform) Act