In March 2016, the new framework of individual accountability in the financial sector known as the Senior Managers Regime (SMR) was brought into force for all dual-regulated FCA and PRA firms. The regime is set to extend to insurers, reinsurers and managing agents on 10 December 2018 and last week, HM Treasury announced that the regime will roll-out for all other FCA regulated firms on 9 December 2019.
Old game; new rules
The extension of the SMR to all FCA regulated firms isn’t a reinvention of the wheel for authorised entities. Most regulated firms will have been subject to the Approved Persons regime for as long as they have been authorised. Rather, SMR is an enhancement of the existing regime, creating greater clarity as to what managers are responsible for and deepening the framework of individual accountability.
Whereas before kicking an issue out to committee could serve as a shield against individual sanctions – SMR intends on making this much more difficult. From the moment they join a firm to the moment they leave, a manager should be under no misapprehension as to what he or she is responsible for.
A combination of measures
The new regime is divided between:
- Senior Managers Regime
- Certification Regime
- Conduct Rules
The SMR requires every affected firm to appoint individuals to specific Senior Manager Functions and to split up to 30 'prescribed responsibilities' between them. Each person performing a Senior Manager Function will need a tailored statement of responsibilities and will need to be pre-authorised by the regulator.
In parallel is a requirement for all those performing 'significant or material harm' functions to be certified as 'fit and proper'. Fitness and propriety must be assessed by individual firms (as opposed to the regulator), must be done at least annually and includes assessment of (1) honesty, integrity and reputation; (2) competence and capability; and (3) financial soundness.
Finally, a new suite of conduct rules will apply to every individual working for affected firms (except for ancillary staff not involved in regulated activity). The conduct rules replace the Code of Practice for Approved Persons and extend to a far broader audience.
It's already happening – or is it?
In May this year the FCA and PRA published enforcement notices of their investigations into Barclays Bank CEO, Jes Staley. As a dual regulated firm Barclays has been subject to the SMR since 2016, but the case against Staley was the first individual investigation brought under the new rules. The investigation concerned Staley's attempts to uncover a whistle blower at the bank, which was misconduct that ultimately cost him over a £1 million in clawed back earnings. However, the case was framed as a breach of conduct rules, as opposed to senior manager rules, with some in the market seeing it as a missed opportunity by the regulator to drive home the application of the new rules at their disposal. The upshot is that we are still waiting for SMR to fully bite. Affected firms are advised to keep an eye out for upcoming FCA enforcement cases in this area.
So what now?
For many firms, the introduction of SMR will mean revisiting recruitment policies, updating template agreements and even conducting staff training. It can also serve as a useful juncture at which to refresh manager and employee ideas on conduct and individual accountability.
Taylor Wessing are ideally placed to advise on the SMR. Our experts in employment law, disputes and financial services have put together a number of fixed price packages that can assist firms in ensuring a smooth transition to the new regime. This includes staff training, template contracts, template policies and procedures, all of which can be tailored to the needs of your firm. For more information please email us.
