HM Treasury Consults on Extension of Senior Managers’ Regime to Financial Market Infrastructures07/20/2021HM Treasury has published a consultation paper seeking feedback on its proposals for the extension of the Senior Managers’ and Certification Regime to certain U.K. financial market infrastructures. The SMCR was originally implemented for U.K. banks in 2016, extended to all U.K. authorized firms in December 2019, and further extended to U.K. benchmark administrators in December 2020. The government is seeking views on whether and, if so, how the SMCR should be extended to FMIs as well as the proportionate application of it to FMIs. Responses to the consultation on the SMR for FMIs should be submitted by October 22, 2021.
The extended regime would apply to U.K. central counterparties, central securities depositories and “recognized payment systems” (as specified under the Banking Act 2009), as well as specified service providers of those recognized payment systems. Recognized payment systems include those that process card payment, direct debit payments and cash withdrawals, as well as those that are embedded within CCPs and CSDs. In the case of CCP and CSD embedded payment systems, the SMCR will be implemented at the level of the CCP or CSD.
The proposed regime would largely mirror the existing SMCRs for banks, insurers and other authorized firms. The Bank of England would oversee the regime for FMIs (unlike the existing SMCRs, which are overseen by the Prudential Regulation Authority or Financial Conduct Authority). Key aspects of the proposed FMI SMCR are:
- A senior managers' regime: the SMR would apply to those conducting senior management functions that involve, or might involve, a risk of serious consequences for the U.K. FMI or other U.K. interests. Precise SMF functions will be determined by the BoE following a separate consultation. Individuals performing SMFs from overseas would also be captured by the regime if they manage the affairs of a U.K. FMI. FMIs would need to apply to the BoE to appoint an individual to an SMF and produce a “Statement of Responsibilities” describing which aspects of the firm’s operations the SMR would be responsible for.
- A certification regime: this would apply to individuals who carry out specified functions which could cause significant harm to the firm or its users, but who do not qualify as SMFs. Precise “significant harm functions” will be determined by the BoE following a separate consultation. A broad range of individuals could be captured by the certification regime, including contractors and secondees. FMIs themselves would certify the fitness and propriety of these individuals to the BoE without the need for BoE approval.
- Conduct rules: all FMI employees would be subject to conduct rules made by the BoE. These rules would establish minimum conduct expectations and will be determined by the BoE following a separate consultation.
It is also proposed that the BoE will have powers to prohibit individuals from conducting functions related to regulated activities of FMIs if they are deemed not to be fit and proper. It would be a criminal offense to perform a function in breach of an order by the BoE. The BoE would also have a range of disciplinary powers to enforce the SMCR, including financial penalties, public statements of misconduct and imposition of conditions on an individual's ability to conduct an SMF.
View HM Treasury's consultation on the SMCR for FMIs.
View details of the FCA's final rules on the SMR for benchmark administrators.
View details of the FCA's final rules on the SMR for FCA solo-regulated firms.
You may also like to see our client note, "The UK’s Expanded Senior Managers and Certification Regime: Key Issues and Action
Plan for Brokers, Advisers and Asset Managers".
Financial Regulatory Developments Focus