Senior Managers regime

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Background

The Parliamentary Committee on Banking Standards (PCBS) was appointed to consider and report on professional standards and the culture of the UK banking sector. In its June 2013 report, entitled ‘Changing banking for good’, the PCBS criticised the Approved Persons regime stating that “a lack of personal responsibility has been commonplace throughout the industry. Senior figures have continued to shelter behind an accountability firewall.”

In light of these criticisms the PCBS recommended that a new senior persons regime (now known as the senior managers regime) and a certification regime be created to improve senior management responsibility.

These recommendations were taken forward into the Banking Reform Act 2013; the requirements were extended to insurers effective 2016 and to all FSMA firms (circa 60,000 firms) at a future date – now expected to be 2018.

An FCA Consultation Paper is due Q2 this year and is expected to set out how the FCA intends to apply the new regime to the rest of the market.
 

What’s currently involved?

The main building blocks of the current new regime include:

  • • A pre-approval regime focused on senior management, with requirements on firms to submit robust documentation on the scope of each individual’s responsibilities
  • • An expansion of SYSC including guidance on the roles and scope of activities which might constitute senior management and setting out, among other matters, requirements for firms to:
  •                     – Produce a business-wide management responsibilities map
  •                     – Allocate a list of prescribed responsibilities to senior management
  •                     – Draw up individual statements of responsibilities
  • • A new Code of Conduct sourcebook (COCON) which covers the majority of staff and includes additional requirements governing expected behaviours for senior managers
  • • An expansion of SUP setting out the future process for achieving approval
  • • New regulatory reference requirements

In the banking sector the building blocks of the regime also included firm-led certification of individuals whose activities are deemed potentially to represent a risk of significant harm to customers or the sector, for example advising on investments.  At this stage it’s unclear if the certification regime will impact the wider market; as yet it has not been applied to insurers.
 

What’s the impact?

If the extension of the regime to all firms follows that for insurers and the banking sector, among other matters, regulated firms may need to consider:

  • • How they currently allocate responsibilities and to whom
  • • Whether all key activities of the business and all elements of the business are fully captured – there should be no gaps in the allocation of responsibilities among management
  • • Why an individual is considered competent to undertake the responsibilities allocated to them
  • • Whether the span of responsibilities which sit with an individual is manageable in practice
  • • Whether the individual statements of responsibilities are properly reflected in the business-wide management responsibilities map
  • • Whether it is actually the firm’s current Approved Persons who hold ultimate or primary responsibility for managing or supervising a function or whether they rely upon others to brief and report to them on such matters and, if so, could/should these individuals be captured by the new regime

 

Next steps

While we wait for the FCA to finalise its approach, we are already helping firms think through the potential implications of the regime on their business, from reviewing present governance arrangements to testing the effectiveness of current/potential structures.

Among other issues we’re recommending firms consider:

  • • Current structures – this is a good opportunity to think about how the firm’s management is set up. It is optimised for the business? Will it be fit for purpose three, five or even 10 years down the line? What succession planning/second tier of governance is in place?  Is the new regime a good opportunity to refresh and restructure?
  • • Current allocation of responsibilities to individuals – is this both recorded and clear? Does an individual’s perception of their responsibilities  match what the business believes?
  • • Producing a ‘dummy’ business-wide management responsibilities map – based on a current and/or a possibly future structure
  • • Encouraging relevant senior staff to produce a statement of responsibilities and comparing this with the responsibilities map to identify any gaps

 

Help and support

In our view the new regime could be an opportunity for firms to review and proactively plan their management structure rather than, as is so often the case, allowing it to reactively evolve over time.  Thistle is already providing training and helping firms think though structures and responsibilities so that they are as prepared as possible for the new regime.

If you would like to discuss how we can support your business please call us on : 020 7436 0630 or email us at info@thistleinitiatives.co.uk.