The introduction of new rules and responsibilities for banks and insurance companies is a process. Today, we find ourselves in the middle of this process. Now is therefore an apt time to look at the past, the present and the future – how has it worked so far for those affected, what does it mean for your people today and what changes are still to come that you need to prepare them for?
A New Culture
The measures introduced by the FCA in response to the 2013 Parliamentary Commission on Banking Standards began with the Senior Managers Regime which was implemented in March 2016, have continued with the Certification Regime this March and will be extended next year to include financial institutions beyond banks and insurance companies.
As this new era of personal culpability develops, People Risk Solutions has been providing help and support to organisations and their people as they get to grips with the regime. As the SMR is extended, we have been helping our clients to establish systems and run practical training workshops which will ensure their people can adapt as the changes filter through.
Certified Persons now need to be certified as fit, proper and competent by the firm, rather than by the FCA or the PRA, as in the past. It is the responsibility of the company to come up with a process to certify all those who were previously Approved Persons, and are now Certified Persons. Part of the regime means that senior managers and certified persons have to adhere to the five conduct rules as follows:
• Rule 1: You must act with integrity
• Rule 2: You must act with due skill, care and diligence
• Rule 3: You must be open and cooperative with the FCA, the PRA and other regulators
• Rule 4: You must pay due regard to the interests of customers and treat them fairly
• Rule 5: You must observe proper standards of market conduct
These rules should be familiar, but now a much stronger emphasis is placed on adherence to them. Additionally, Senior Managers have four extra rules applicable to them as well:
• SM1: You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
• SM2: You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
• SM3: You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee this effectively
• SM4: You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice
With the broadening of the regime, we have been able to expand our workshops introducing these new rules and associated features beyond just Certified Persons to all staff within a firm. This has helped clients reduce the risk of junior staff getting caught out, breaching these rules and incurring disciplinary and regulatory sanctions.
Reception to the SMR has been broadly positive, which is important given that this process is ongoing and will continue to expand next year. In a Duff & Phelps survey 55% of those polled believed that the new measures had produced a positive effect. Only 15% believed there had been a negative impact.
The 30% of undecided persons have good reason to be withholding judgement. One year on, the FCA are yet announce their first investigation under the SMR and the potential issues are still only hypothetical.
Though the changes should make it easier to identify an individual to be held responsible in the event of an investigation, will a Senior Manager – with his or her reputation and livelihood at stake – fight and resist an investigation with more vigour than a firm, which might be more inclined to settle as quickly as possible in order to return to business?
There are still unknowns and much of the response to the SMR is largely hypothetical. However, with no immediate backlash against the changes or signs of a course change, it is crucial that banks and insurance companies continue to ensure their staff adhere to the rules. With the inclusion of all financial institutions into the regime next year our workshops will continue to run, helping businesses to inform their people and reduce risk.
To find out more about how the SMR could affect you or to arrange training for your staff contact PRS here