UK Regulators Move to Amend UK's Senior Manager & Certification Regime
The Prudential Regulation Authority and the Financial Conduct Authority launched a consultation proposing amendments to the Senior Manager & Certification Regime. Most of the changes result from the legislative changes made in the Bank of England and Financial Services Act 2016. However, the regulators are also proposing some other changes which they consider appropriate having had the opportunity to assess the SM&CR in practice.
Both regulators are consulting on proposed guidance on the so-called "duty of responsibility". The duty of responsibility replaced the presumption of responsibility and allows the regulators to take action against a Senior Manager for misconduct if his/her firm contravenes a regulatory requirement at the time that the Senior Manager was responsible for the management of those aspects of the firm's activities. The regulators will need to show that the Senior Manager did not take reasonable steps to prevent or stop the contravention. The PRA's proposed guidance on what may constitute "reasonable steps" and how they can be documented has not materially changed following the shift from the presumption of responsibility to the duty of responsibility. The FCA is proposing a non-exhaustive list of considerations that may be relevant when determining whether a Senior Manager was responsible for the relevant area at the relevant time as well as a non-exhaustive list of considerations it will take into account when considering whether reasonable steps were taken by a Senior Manager.
Both regulators are also proposing to extend the application of some of the Conduct Rules to notified non-executive directors in banks, building societies, credit unions and dual-regulated investment firms (relevant authorized persons or RAPs) and insurance firms. Notified NEDs are NEDs that are not in scope of the SMR.
In addition, the PRA is proposing to introduce a new Senior Management Function, known as the Chief Operations function in RAPs, together with a new PRA Prescribed Responsibility. This is intended to bring within the scope of the SM&CR those individuals with overall responsibility for managing and ensuring the operation continuity and resilience of the internal operations, systems and technology of a firm. The PRA is also proposing additional criteria for the Head of Key Business Area function and clarifications of its expectations of Statements of Responsibilities and Management Responsibilities Maps.
Responses to each consultation paper are due by January 9, 2017. The PRA anticipates that its final rules will come into effect within two months of the regulators publishing their final rules, with the exception of the introduction of the new Chief Operations SMF, the new Prescribed Responsibility and the additional criteria for the Head of Key Business Area function, which will each take longer to implement. The FCA has stated that it intends to publish final guidance on the duty of responsibility in early 2017 and will publish its rules on extending the Conduct Rules to Notified NEDs later in 2017.
View the PRA's consultation paper.
View the FCA's consultation paper on proposed guidance on the duty of responsibility.
View the FCA's consultation paper on applying the conduct rules to all NEDs in the banking and insurance sectors.