FCA plans to extend senior managers' regime to non-executive directors

28 Sep 2016

The Financial Conduct Authority (FCA) plans to consult on a series of measures to reinforce the importance of individual accountability at the most senior level of financial institutions just six months after the implementation of the Senior Managers’ and Certification Regime, with plans to extend the rules to non-executive directors

The measures are part of the FCA’s continued focus on culture and will build on initiatives which will help the regulator to identify and assess key senior individuals. The FCA has confirmed final rules on regulatory references, which clarify the information that firms are required to share with one another as part of recruiting to key roles.

As part of plans to tighten governance rules, the FCA will also consult on:

revising guidance for senior managers on the ‘duty of responsibility’, with a view to amending the Decision Procedure and Penalties Manual (DEPP). Under the duty of responsibility, the FCA and the Prudential Regulation Authority (PRA) can take action against senior managers if they are responsible for the management of any activities in their firm in relation to which their firm contravenes a regulatory requirement, and they do not take such steps as a person in their position could reasonably be expected to take to avoid the contravention occurring (or continuing). Deadline for feedback on CP16/26 is 9 January 2017;
a new requirement for UK branches of overseas banks to tell their UK-based employees about the whistleblowing services offered by the FCA and the PRA; and
extending the conduct rules to all non-executive directors of banks and insurers – consultation on applying the FCA Code of Conduct sourcebook (COCON) to standard non-executive directors (NEDs) in banks, building societies, credit unions and dual-regulated investment firms (relevant authorised persons - RAPs) and insurance firms.

In addition, the FCA will publish a discussion paper about how those heading up the legal function in firms should be treated under the senior managers and certification regime, and whether they should continue to be governed by the scheme.

Ahead of the introduction of the Senior Managers and Certification Regime in March this year, most firms sent detailed grandfathering notifications, statements of responsibilities and firm responsibilities’ maps.

In some cases, the FCA has seen evidence of overlapping or unclear allocation of responsibilities. In other cases firms appear to be sharing responsibility among more junior staff, obscuring who is genuinely responsible. This goes against the intent of the Senior Managers and Certification Regime and must be addressed.

The FCA reviewed a sample of the documentation submitted and is publishing tailored feedback for UK banks and building societies, non-EEA branches, incoming EEA branches and credit unions.

The Senior Managers’ and Certification Regime will be extended to all regulated financial services firms from 2018.

Andrew Bailey, chief executive of the FCA, said: ‘Six months on and, in a great many cases, firms have made a substantial effort to get this right and embrace the importance of the key principles underlying the Senior Managers and Certification Regime, namely responsibility and accountability.

‘Knowing who is responsible for what is critical for firms and regulators and we have seen genuine engagement on this from the board down.

‘Generally, we have observed that firms are taking their responsibilities seriously and have broadly got the regime right. But we recognise culture change takes time and there is still more to do. So we have to keep a watchful eye on the progress firms are making.’

The closing date for the FCA consultations is 9 January 2017.