Top executives at banks and financial institutions, including CEOs and chairs of audit committees, are to face much stricter levels of accountability with the introduction of a new Senior Managers Regime governed by the Prudential Regulation Authority (PRA), which introduces a criminal offence for senior managers in the event of the failure of a major institution
The PRA's senior managers regime is designed to hold individuals to appropriate standards of conduct and ensure that senior managers are held to account for misconduct that falls within their area of responsibility. A broad range of senior managers will fall within the scope of the new rules, including audit committee chair, head of internal audit and chief finance functions, including CEOs.
From 7 March, senior managers in UK banks, building societies or systemically important (PRA-regulated) investment firms will have committed a criminal offence if they agree to a decision which causes the institution to fail.
If, at the time of the decision, they were aware of the risk that the decision could cause the institution to fail, and their conduct in relation to the decision fell far below what could reasonably be expected of a senior manager in that position, they could leave themselves open to court proceedings.
The PRA and and the Financial Conduct Authority (FCA) will also apply key principles of the senior managers regime to senior members of staff in both regulators.
Andrew Bailey, deputy governor, prudential regulation, Bank of England and CEO of the PRA said: ‘At the heart of the new accountability regime is one very simple principle - you can delegate tasks but you cannot delegate responsibility.
‘This means that senior managers at banks and insurers should know what they are responsible for and can be held accountable for failings in their area. This is a crucial milestone in our drive for greater accountability in financial services.’
The launch of the regime implements the recommendations made by the Parliamentary Commission for Banking Standards, which sought to improve the culture and regulation of UK banks.
Tracey McDermott, acting chief executive at the FCA, said: ‘The senior managers regime is not designed to re-invent the way that firms organise themselves but to reflect and ensure clarity about how this operates in practice.
‘We are determined to embed a culture of personal responsibility within the banking sector.’
The PRA Senior Managers Regime guidance is available here
