UK: Senior Managers, Certification And Accountability – Where Are We Now?

Last Updated: 11 March 2015
Article by Alix Prentice, Stephen Flaherty, Anna McCaffrey and Caroline Bystrom

On 3 March 2015, the Economic Secretary to the Treasury, Andrea Leadsom announced that the proposed rules to regulate conduct in the banking sector will come into force on 7 March 2016. The Senior Managers and Certification Regime (SM&CR) will apply to UK branches of foreign (non-EEA) banks as well as UK headquartered banks, building societies, credit unions and PRA-regulated investment firms.

The new criminal offence relating to decisions causing a financial institution to fail could apply to decisions taken by senior managers in UK banks, building societies and PRA-regulated investment firms—but not credit unions or any foreign institution—on or after 7 March 2016.

The new regime aims to strengthen the accountability of bank senior management and to raise standards of individual conduct in the banking sector. The new regime aims to strengthen the accountability of bank senior management and to raise standards of individual conduct in the banking sector. The proposals are far-reaching, with three strands: 

  • A revised Senior Managers Regime (SMR)
  • A new Certification Regime for a range of roles within a firm
  • New Conduct Rules across a wide strata of firm employees.

Know your business

The SMR imposes onerous obligations on senior managers, who carry a greater risk of regulatory disciplinary action in the event that firm systems and controls are found to be wanting. In extreme cases, a senior manager runs the risk of a criminal prosecution should a bank fail. Senior individuals are likely to want to gain an understanding of how these changes directly affect them and the steps available (at an institutional and individual level) to mitigate their personal risk exposure. This increase in potential personal exposure takes place against the backdrop of changes to the remuneration regime (e.g. bonus caps, the curbing of role based allowances, deferral and claw back), which are testing for both firms and individuals.

The proposed new rules underline the need for financial services staff to conduct themselves appropriately, and for senior manager to know their business and to ensure the risk management features are adequate and applied. It is important for senior managers to know the areas for which they are responsible are clearly delineated. Ideally, senior managers will need to ensure they have had sufficient opportunity to undertake appropriate due diligence of those areas prior to the new regime coming into force.

These measures are also of real significance for individuals across the firm. Firms will need to engage employees at an early stage in order to explain the requirements and potential ramifications that arise in the new landscape. The increased focus on an individual's acts and omissions, central to the changes, will inevitably lead to implementation teams having to address a range of employee concerns during this process.


The position of Non-Executive Directors (NEDs) is still under consultation – the PRA's consultation closes on 27 April 2015 (Approach to non-executive directors in banking and Solvency II firms & Application of the presumption of responsibility to Senior Managers in banking firms – CP7/15) and additional information on its approach to NEDs has been released by the FCA with its paper CP 15/5.

What is next?

When the FCA publishes its roadmap towards implementation, which should be published shortly, there should be greater clarity on the timetable towards the final rules. As firms will need to submit transitional documentation to the regulators by 8 February 2016, it is important for firms to plan for this at an early stage.

For the banking sector, the changes to the approved persons regime have their roots in the Financial Services (Banking Reform) Act 2013 (the Act) so HM Treasury has made the necessary commencement order (under s.148 of the Act, which will also commence sections 36 to 38 (ie the criminal offence)) and a transitional provisions order (under s.146 of the Act). The Financial Services (Banking Reform) Act 2013 (Commencement No. 9) Order 2015 (2015/490) and the Financial Services (Banking Reform) Act 2013 (Transitional and Savings Provisions) Order 2015  (2015/492) have been published and should be in force from 26 March 2015.

For the foreign banks measures, HM Treasury must now make an order (under Financial Services and Markets Act 2000 s.71A) to implement the measure. The debates should take place early in the next Parliament (subject to any change in political direction after 7 May). Added to this, further consultation for the detailed regulatory rules will be needed. The PRA and FCA are likely to start this in advance of any legislative procedures.

In the long term, these developments have implications beyond banking as these measures are likely to form the blueprint for management accountability, not only across financial services but also other industries; for example, senior management accountability proposals are already under consideration for the insurance sector linked to the Solvency II package.

More generally as the UK general election on 7 May 2015 gets ever closer, it will be interesting to see how the political debate about financial services regulation develops. The Labour Party has already indicated it plans to raise a bank bonus tax, for example, and this issue will inevitably be a focus of considerable interest during bonus season and beyond.

A selection of source information

Government Announcement

FCA Announcement

FCA - CP14/31: Strengthening accountability in banking: forms, consequential and transitional aspects

PRA – remuneration resources

Accountability - Strengthening accountability in banking: a new regulatory framework for individuals consultation (PRA CP14/14, FCA CP 14/13)

Remuneration - Strengthening the alignment of risk and reward: new remuneration rules consultation (PRA CP15/14, FCA CP 14/14)

Remuneration - Clawback policy statement (PRA PS 7/14)

Senior Insurance Managers Regime: a new regulatory framework for individuals consultation (PRA CP 26/14)

Changes to the Approved Persons Regime for Solvency II firms (FCA CP 14/25)

Andrea Leadsom's Ministerial Statement to the House of Commons sets out background to the implementation timetable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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