New regulation changes for the banking sector
Regulatory regime changes governing the personal accountability of MLROs are designed to improve accountability and individual responsibility in the banking sector. The main changes are the introduction of the new Senior Managers Regime for the most senior individuals working within financial institutions; the introduction of a new Certification Regime for "significant harm" employees; and the extension of personal regulatory duties to all employees of banks (including some contractors) who are performing non-administrative roles.
A recent presentation – The Senior Managers and Certification Regimes: Understanding the Impact on Money Laundering Reporting Officer (MLRO) – given by Polly James from Berwin Leighton Paisner LLP, at an event held by the Association of Certified Anti-Money Laundering Specialists (ACAMS) outlined the changes and compared them with the previous regime.
Tighter regulatory environment for bankers
The new rules represent a significant tightening of the regulatory environment for bankers and will, over time, have a potentially major impact upon banks and their employees.
In future, all senior managers will be required to sign a formal 'statement of responsibility' when applying for regulatory approval, while those in the highest positions will have prescribed responsibilities. The changes will also mean that banks will be required to create maps of their governance structure and keep them up to date. This, together with proposed changes to the rules regarding the provision of regulatory references, will mean that banks must drastically improve their record keeping procedures in order to be able to comply.
Under the new system, the regulators will for the first time be able to impose conditions and time limits on the approvals granted to Senior Management Function holders (SMFs). Furthermore, the regulators will be able to suspend and individual's approval at will. Finally, a new criminal offence of reckless mismanagement of a bank is being introduced.
Those further down the chain of command in a bank will also be subject to new rules, with any member of staff within a bank becoming subject to Conduct Rules that are enforceable against them by the regulators.
Most of the rules apply to any banking institution operating within the UK, but institutions from other countries within the European Economic Area (EEA) and from the rest of the world who operate in Britain, are subject to watered down versions of the regime due to the operation of EU law.
To what extent the new regime will be extended to firms dealing in the Fixed Income, Currency and Commodities markets (FICC) is, as yet, unclear – further consultation is awaited on this.
It is recommending that all senior bank personnel, 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.
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