Significant changes in the regulation of financial services
were enforced by The Financial Conduct Authority (FCA) and
Prudential Regulation Authority (PRA) earlier this year that placed
increased personal responsibility on senior management. The
'Senior Managers and Certification Regime' (SMCR) replaced
the preceding 'Approved Persons Regime' and has introduced
new conduct rules in an approach by the regulators to harden
accountability and compliance within the financial sector.
The introduction of the SMCR was based on a report produced by
the Parliamentary Commission for Banking Standards in June 2013,
which set out recommendations on how to improve professional
standards and culture in the UK banking industry following a series
of high profile industry exploitations such as the PPI and Libor
The SMCR focuses regulatory prior approval on the key personnel
at the top of financial institutions and organisations with
'statements of responsibility' for each senior manager,
which translates to the personal accountability of that senior
manager should the regulators identify any regulatory breaches
committed by his/her financial services firm.
The SMCR has placed responsibility for ensuring key staff below
senior management levels are fit and proper and the firms'
preparations will need to include putting in place suitable
procedures for assessing staff propriety. Any misconduct that falls
within the senior manager's areas of responsibilities, the new
SMCR will aim to hold senior management and individuals working at
all levels in banking to appropriate standards of conduct.
"Appropriate and robust accountability for senior
managers in financial institutions is a crucial part of the
effective functioning of the economy," commented Andrew
Bailey, CEO of the PRA, when the regime was launched.
"At the heart of the new accountability regime, which
comes into force, 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", Andrew Bailey further affirmed. It was
initially envisaged that the new regime would enforce a burden of
proof requiring bankers and senior managers to demonstrate they had
done the right thing throughout any banking or financial services
failure. However, after intense industry lobbying the revised
burden of proof will now fall on the authorities to actively prove
any presumed wrongdoing.
The launch of the SMCR picks up from the criminal liability
placed on senior managers in UK finance houses, under section 36 of
the Financial Services (Banking Reform) Act 2013. This
uncompromising piece of legislation criminalises the conduct of an
individual for decisions that cause a financial institution to
fail. The Act expressly outlines conduct that will determine if a
criminal offence has been committed by a senior manager:
he or she agrees to the taking of a
decision which causes the institution to fail;
at the time of the decision, she or
he was aware of the risk that the decision could cause the
institution to fail;
his or her conduct in relation to the
decision fell far below what could reasonably be expected of a
senior manager in that position.
Any senior manager found guilty of such an offence on indictment
could face the possible sentence of seven years imprisonment, an
unlimited fine, or both. The UK is unwavering in its pursuit of
tackling white collar crime and measures such as the SMCR and the
2013 Act firmly demonstrate the firm and robust action taken by the
The material contained in this article is of the nature of
general comment only and does not give advice on any particular
matter. Recipients should not act on the basis of the information
in this e-update without taking appropriate professional advice
upon their own particular circumstances.
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The implementation of the mandatory exchange of initial and
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On February 9, 2017, HM Treasury published a paper summarizing responses to its consultation on the transposition of the revised MiFID and three draft statutory instruments to facilitate transposition.
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