Shearman & Sterling LLP | FinReg | UK Conduct Regulator Concludes No Changes Needed to Banking Senior Managers Regime
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  • UK Conduct Regulator Concludes No Changes Needed to Banking Senior Managers Regime

    The U.K. Financial Conduct Authority has published the findings of its review into the implementation of the Senior Managers and Certification Regime for the banking sector. The SM&CR came into force for banking firms in March 2016 with the aim of making individuals in the banking sector more accountable for their conduct. The FCA conducted the review to determine how the SM&CR has been implemented in the three years since its introduction. The review is intended to aid understanding of the impact of the regime and the FCA does not intend to make any policy changes on the basis of its findings. The FCA's review focuses on the implementation of the existing banking SM&CR, but an expanded SM&CR regime will come into force for all FCA solo-regulated firms from December 9, 2019. Firms falling within scope of the expanded regime should, where appropriate, also take the findings of the FCA's review into account in their implementation of the SM&CR.

    The review found that most firms are making an effort to embed the regime within their organization. It focused on key aspects of the SM&CR, including:
    • Senior managers: Senior managers have demonstrated a good understanding of their accountability under the regime. Some concerns were identified by firms, including that non-executive directors may be treated more like executive directors on the basis of the Board's involvement in business operations. The FCA confirmed this was not the purpose of the regime, although it acknowledged that the Senior Management Function of a non-executive director in a banking firm was likely to entail considerable responsibility.
    • Certification Regime: Firms appear to have established robust frameworks for overseeing those subject to the Certification Regime, although the FCA found little evidence that firms had significantly changed their performance assessment processes.
    • Regulatory references: While industry is broadly positive about the concept of regulatory references, there is a general feeling that the quality and timeliness of references could be improved.
    • Conduct rules: Firms have not always adequately mapped the conduct rules to their internal values, leading the FCA to stress the need for firms to provide adequate training to ensure individuals understand the conduct rules applicable to them.
    • Impact on culture: A change in culture has been noted by most firms, including a stronger tone delivered from management and the detail and clarity of conversations surrounding firm culture, although firms did note that culture change had begun before the implementation of the SM&CR.

    View the FCA's SM&CR Banking Stocktake Report.

    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".
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