Caries management guidelines
The original Senior Managers Regime was rolled out to banking firms in March and it has now been extended to all 58, firms regulated by the Iberia surpoids test and the near final rules were published in the summer after extensive consultation so nothing much is likely to change, and although December sounds like a long way away, there will be significant preparation required and our experience is that many clients are now kicking off their projects.
So what is the FCA seeking to achieve? One of the main objectives of SMCR is to impose greater individual accountability, so that it is clear who is responsible for a particular area. It is also about improving the standards of conduct. Financial Services firms have not covered themselves in glory in areas like LIBOR or the mis-selling of payment protection insurance PPIand you hear a lot from the FCA nowadays about culture and tone from the top, and it is also about having documentation in place to show that you understand what your responsibilities are.
So who does the SMCR apply to? Basically if you operate a regulated business which is authorised by the FCAit will apply to that regulated firm. Instead those firms will continue to be subject to the approved person's regime. So if you are only an appointed representative of a firm which is FCA authorised, that is you are operating under that firm's regulatory umbrella, it will not apply to you.
The FCA has differentiated between the level of regulation under the Senior Managers Regime which applies to you depending upon what type of firm you are. There are three tiers of classification, enhanced, limited scope and core. I do not suppose there are too many firms out there that satisfy this category, and the heaviest burden will apply to enhanced firms.
Most firms will be core firms. Those firms will need to comply with the Senior Managers Regime, the Certification Regime and the Conduct Rules, and I am going to explain shortly what these are, and some firms will be limited scope firms, for example, limited permission consumer credit firms, and firms in that tier will be subject to fewer rules than core firms.
Let us have a look now at the senior management function. The most senior people in a firm, those with the greatest potential to cause harm or to impact upon market integrity, are required to hold senior management functions and these break down into governing functions like CEO, executive director and chairs of committees. There are also required functions such as compliance oversight and the money laundering reporting officer, there are additional systems and controls functions, for example, head of internal audit.
Any person holding one of these roles will need to be approved by the FCA before they can start their role. I mentioned earlier on that there are certain documents and related materials that you need to have to show that you understand your responsibilities as a senior management function holder.
A statement of responsibility is a single document that every senior manager will need to have clearly setting out their roles and responsibilities. There is also a responsibilities map but that only applies to enhanced firms. That is a single document that sets out the firm's management and governance arrangement.
Every senior manager also has a duty of responsibility. That is not a document but it basically means that if something goes wrong in an area for which you are the senior manager responsible, you could be held accountable and to impose liability the FCA need to show that you did not take reasonable steps in discharging your responsibility and they will take into account all the circumstances of the case.
There are also prescribed responsibilities so these are specific responsibilities that a firm must give to a senior manager. These include responsibility for the firm's policies and procedures to prevent financial crime and responsibility for client assets. Turning now to the Certification Regime, this a new requirement and the Certification Regime covers specific functions that are not senior management functions, but could still have a significant impact on customers, the firm or market integrity, and that will include financial advisors as part of the client dealing function.
The firm is required to state that they consider the person is fit and proper to perform the certification function and this must be done at least annually.
As Jonathan will explain later on, what this means is at the firm you are the regulator and it is your responsibility at the firm to make that judgment and not the regulators. Turning now to fitness and proprietary, this applies to all firms, and fitness and proprietary includes honesty, integrity and reputation, competence and capability, and financial soundness and you can guess there might be some grey areas here.
For example, if a person is convicted of a speeding offence, what impact will that actually have on the performance of their day to day role? Senior managers are also subject to a criminal records check and firms are required to seek a regulatory reference from previous employers for senior managers and staff in certification functions.
Let us now look at the Conduct Rules, and there are two tiers of Conduct Rules that apply to all firms. There is a general set of rules that apply to most employees and directors in a firm. For example, you must act with integrity.
You must act with due skill care and diligence and you must be open and cooperative with the FCA. Those of you who are familiar with the FCA Principles will recognise that those rules are very similar. There is also a second tier of rules that apply to senior managers. For example, you must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively and firms are required to train their senior managers and their certification staff on these new Conduct Rules.
Firms are also required to notify the FCA when disciplinary action has been taken against a person for a Conduct Rules breach so this might mean issue of a formal written warning, suspension or dismissal of a person or the claw back of remuneration.
Note that this also applies to the firm's unregulated as well as regulated business, so the scope is really quite broad. So that is an overview of the compliance scope. Jonathan is now going to have a look at the people issues. Jonathan : Thanks Ian. What I would like do is to talk to you about the underlying drivers that are behind the new regime and how it is that you are going to need to take these into account in the way that you manage your people.
I am going to start off with a single word and that word is culture. The FCA published a discussion paper on culture and it contains various essays from all sorts of business thinkers and academics and practitioners on what is culture. I am not going to try and summarise that because the writers will have different perspectives and it is a really interesting read in its own right and I would strongly urge you to have a look at it.
My own definition of culture for what it is worth is that culture is what happens in an organisation when no one is looking. What the FCA says about the importance of culture though is crucial.
Senior manager accountability regime uk
They say culture in financial services is widely accepted as a key root cause of the major conduct failings that have occurred within the industry in recent history, causing harm to both consumers and markets. For markets to work and firms to be successful, it is critical they are seen as trustworthy. Social expectations have changed, I will come back to that a bit later on in this talk, and public interest has raised questions of trust in firms and in the industry as a whole.
To increase competence firms need to demonstrate that they are working in the interests of consumers and the market.
So that is what the FCA says about culture, it is critical, but how does that work itself out through the rules. How does that turn itself into a concrete requirement of things that you are supposed to do? Well there are two things we can look at here.
Firstly it is the rules themselves, the concepts that lie behind them and secondly, we do now of course have some worked experience of how these rules have been applied in practice because the first tier of institutions in crude summary, the big banks, have already been operating under these regimes for a while now and what I would like to do is share our experience from working with clients who have already been working with these rules, and the first thing to do is to pick up on a couple of points that Ian has mentioned.
He set out the framework of the rules here and explained that the Senior Managers Regime is injection de botox liege 2014 to give transparency and accountability and that sitting alongside that and underpinning it, the Conduct Regime is meant to drive behaviours.
Now the key thing to appreciate here is this is not simply a transcription of the old regime, the old approved person's regime has not just been bolted on to the Senior Management Regime or vice versa, although a lot of the concepts remain the same, "fit and proper" for example, this is a new way of doing business, an improved way of doing business and organisations which do not understand that are not going to meet the new requirements.
How does that work itself out in practice? Well as Ian said, the questions of fitness and proprietary are in the first line, no longer questions for the regulator, although obviously in enforcement, they will be but questions for the firms themselves.
You are the regulator. It is your decision as to whether someone is fit and proper. Now what does that mean in practice?
It means two things, one I think following from the other. The first is that under the old regime where the regulators were resource constrained and therefore what they would take into account in fitness and proprietary was resource constrained because the burden has been moved on to individual firms, as far as the regulator is concerned you are an infinite resource. They can simply direct that this is what you do and you will have to adjust your budget to fit, they do not run up against their own cash limits so previously when one looked at questions of fitness and proprietary then putting it crudely, one would look at questions of financial misconduct, did an individual have their hand in the till, were client monies safe, was there financial exposure to the organisation?
Imogen Garner. Hannah Meakin. Paul Griffin. Katie Stephen. John Coley. Lisa Lee Lewis. Simon Lovegrove. Secteur: Institutions financières Domaines de pratique: Services financiers et réglementation Consultation en conformité réglementaire Droit de l'emploi et du travail.
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