UK: Senior Managers Regime - Top Five Lessons Learned

Last Updated: 2 April 2015
Article by Nikki Lovejoy and Cindy Chan

Most Read Contributor in UK, August 2017

Her Majesty's Treasury announced on 3 March 2015 that the commencement date for the Senior Managers Regime ("SMR") will be 7 March 2016, and the Financial Conduct Authority ("FCA") published its feedback statement on accountability on 16 March 2016. The timeline for commencement of the new regime is set; banks will have until 8 February 2016 to notify the Prudential Regulation Authority ("PRA") and FCA of the names of all those, including people currently approved, who will be senior managers under SMR.

Deloitte has been working closely with a range of banks since the proposed SMR rules were first announced in July 2014. As our clients have begun the process of transition to the new regime we have identified a number of areas where stumbling blocks have emerged, reflecting the wholesale changes the SMR is introducing to the way some banks structure and run their business.

With less than a year to go until commencement, the FCA has stated that firms should make progress straight away by identifying staff who require pre-approval and clarifying any areas where responsibilities are unclear. We have set out below what we regard as the Top Five Lessons Learned so far; detailing a number of additional areas in which firms can make progress now. Other banks which are now launching their transition programmes should take these into consideration when planning their activities over the coming months.

Lesson 1 – Statements of Responsibilities are not a box ticking exercise

The design of the FCA and PRA template Statement of Responsibilities appears at first sight to require little more than ticking the applicable functions and responsibilities for each SMF. However, the reality behind those ticks is much more complicated. As senior managers are identified and responsibilities begin to be allocated, banks are finding that senior managers will often require a great deal of one-to-one engagement to ensure they are comfortable with the areas of responsibility assigned to them and that the limits of their accountability are clearly documented. These discussions will often cause senior managers to reflect on whether their current infrastructure and departmental governance arrangements are fit for the new purposes of the SMR. Reconciling the competing demands from both the bank, for allocation of responsibilities at a senior level, and from senior individuals, who want to see the complexity of their roles recognised, can result in a protracted process of negotiation which should be factored into any planning process.

Lesson 2 – Mapping Group dynamics is leading to structural change

For banks operating as subsidiaries of international groups, a key challenge of the SMR regime (particularly in relation to the Responsibilities Map) has been mapping group interactions in a way that demonstrates the primacy of the UK entity over its own regulated activities. In practice many subsidiary banks operate under strong direction from their parent company and main shareholder. This does not sit easily under existing regulation and even less so with the requirements for individual accountability within the SMR. Consequently, some firms are having to re-visit their governance structures. The key changes we have seen being implemented focus on clarifying reporting lines (and delegated responsibilities) and reducing the role of group directors on the Board to reinforce the authority of the UK CEO in decision making. 

Lesson 3 – Fundamental changes to business as usual processes are required

The impact of the SMR will not end on commencement. The requirements of the new regime, in particular the presumption of responsibility are leading to changes across numerous processes and systems in order to ensure that senior managers can show that "reasonable steps" have been taken to prevent contraventions occurring. These include: the entire HR lifecycle from recruitment to appraisal; compliance systems for monitoring and tracking of conduct breaches; and a whole suite of new training requirements. Identifying, coordinating and implementing these changes is a significant task. Banks need to start planning these changes early or senior managers may be caught out if their "reasonable steps" are not in place in time for the new regime. A successful approach is to quickly establish a working group with all key stakeholders (e.g. HR, Legal, IT, Compliance, Company Secretariat etc.) and create an integrated programme to implement the changes required for commencement and deliver sustainable compliance.

Lesson 4 – Strong and cohesive programme leadership is required

As discussed above, the SMR requires firms to make changes to a large number of areas across the business and constitutes a major change programme. Without strong leadership the programme can easily get weighed down in technical detail, differences of opinion and resource bottlenecks. An effective transition programme requires a senior project sponsor to lead transition and to engage early on with senior stakeholders. The leaders and sponsors must have the ability to engage with the Board and Executive level to drive decision making that may at times change the status quo.

Lesson 5 – Agree remuneration approach at the outset

SMR is having a material impact on the way individuals view their roles and responsibilities and there is likely to be upward pressure on remuneration as a consequence. Banks should have a consistent message on reward from the outset and engage with stakeholders early on as our experience has shown that this topic raises many questions which often take a long time to resolve.

In conclusion, our view from the work we have done to date is that the sooner planning for implementation of the SMR starts the better. There can be many devils in the detail, some of which will only become apparent once work has begun, and these are best dealt with well before 8 February 2016.

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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