Regime Change: Senior Managers &Certification Regime

January 01, 1970 by Mark Dunn

The original SM&CR regime proposal, tabled earlier in the year, relates to governing the personal accountability of Senior Managers and is designed to improve accountability and individual responsibility in the banking sector.

beyondExtending the Regime scope
The new amendments to the Bill now include widening of the scope of the regime to cover all authorised financial services firms. Many firms beyond the banking sector – such as large investment firms, insurers and those involved in shadow banking – can pose a threat to financial stability. Misconduct by firms of any size can have serious impact on the welfare of consumers or on market integrity, which will in turn harm consumers, investors and the businesses that depend on fair and effective markets.

In June this year, the Fair and Effective Markets Review recommended that the SM&CR should be extended to cover firms active in fixed income, commodity and currency markets. The latest change means that the SM&CR will be extended to all sectors of the financial services industry, including insurers, investment firms, asset managers, insurance and mortgage brokers and consumer credit firms.

By extending beyond the banking sector, the Government aims to help create a fairer, more consistent and rigorous regime for all authorised financial services firms.

For banks, building societies, credit unions and PRA-regulated investment firms the regime will come into force on 7 March 2016, as previously announced. For other sectors the intention is that it will come into practice during 2018. How exactly the SM&CR will apply to these other sectors are unclear at this point, with consultation to follow once the legislation is passed.

'Presumption of responsibility' replaced by 'duty of responsibility'
The other significant change to the regime is to what was considered to be the most controversial element, that of 'presumption of responsibility'.

Now the Government has decided to introduce a 'statutory duty of responsibility' to be applied consistently to all senior managers across the financial services industry. This supersedes the 'reverse burden of proof' which would have applied to banking sector firms when they become subject to the SM&CR in March 2016. Senior managers will continue to have an obligation to prevent regulatory breaches, but will be guilty of misconduct only if the regulator can show that the senior manager has failed to do this. Previously, the burden of responsibility rested on the Senior Manager to prove that they were guilty of misconduct. However, the same tough underlying obligation will remain on the individual to ensure that they take reasonable steps to prevent regulatory breaches in the areas of the firm for which they are responsible.

Take action to prepare for regulatory accountabilities
It is recommended that all senior pesonnel, including MLROs and Compliance Heads, now need to make themselves aware of their increased personal regulatory accountabilities and prepare strategies to mitigate the associated risks, calling on firms to start planning for the new regime as soon as possible.

Webinar: Practical guidance for managing bribery & corruption risk in financial services