FCA makes individuals accountable in financial services shake-up

Individuals working with financial services organisations will become more accountable for their conduct and competence as a result of the latest ‘culture change’ proposal by the UK financial services regulator.

In October 2015, HM Treasury announced its intention to extend the Senior Managers and Certification Regime (SM&CR) to all sectors of the financial services industry.

After a consultation period, the Financial Conduct Authority (FCA) has today published proposals to extend the SM&CR to almost all regulated firms. The new regime will essentially replace the current Approved Persons Regime.

The FCA said in a statement announcing the proposal that aim of the new regime is to “reduce harm to consumers and strengthen market integrity” by making individuals more accountable for their conduct and competence.

As part of this, the regulator said that the new SM&CR aims to: “encourage a culture of staff at all levels taking personal responsibility for their actions and make sure firms and staff clearly understand and can demonstrate where responsibility lies”.

The implementation of the regulator’s new regime will be “proportionate” according to the size of the firm, and will apply a baseline of specific requirements to all regulated firms, called the “core regime”.

However, for the largest and most complex firms (which accounts for fewer than 1% of regulated firms) the FCA proposes some extra requirements, under the “enhanced regime”.

Proposed changes

The FCA said that it proposes three parts to the SM&CR:

  1. Five Conduct Rules that will apply to all financial services staff at FCA authorised firms. This simple set of rules means that individuals must act with integrity, act with due care, skill and diligence, be open and cooperative with regulators, pay due regard to customer interests and treat them fairly, and observe proper standards of market conduct.
  1. The responsibilities of Senior Managers will be clearly set out and, should something in their area of responsibility go wrong, they can be personally held to account. The Senior Managers will be approved by the FCA and appear on the FCA Register.
  1. Under the Certification Regime, firms will certify individuals for their fitness, skill and propriety at least once a year, if they are not covered by the Senior Managers Regime but their jobs significantly impact customers or firms.

‘Culture change’

Jonathan Davidson, executive director of supervision – retail and authorisations at the FCA, said: “Culture and governance in financial services and its impact on consumer outcomes is a priority for the FCA. The extension of the Senior Managers and Certification Regime is key to driving forward culture change in firms.

“This is about individuals, not just institutions. The new Conduct Rules will ensure that individuals in financial services are held to high standards, and that consumers know what is required of the individuals they deal with.

“The regime will also ensure that Senior Managers are accountable both for their own actions, and for the actions of staff in the business areas that they lead.”

Insurers currently apply a revised version of the FCA’s Approved Persons Regime and the Prudential Regulation Authority’s Senior Insurance Managers Regime. The FCA proposes to build on this framework and introduce all elements of the updated Senior Managers and Certification Regime to insurers, the statement concluded.

ABOUT THE AUTHOR
Gary Robinson
Deputy Editor, International Investment and Head of Video at Open Door Media Publishing. A fully qualified journalist and filmmaker with more than 20 years' financial services experience, both as journalist and originally as an IFA.

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