The rules cover the Senior Managers Regime; the Certification Regime; and new Conduct Rules, and follow on from the final rules on banker bonuses released last month.
The Parliamentary Commission for Banking Standards had previously set out recommendations for legislative and other action to improve professional standards and culture in the UK banking industry. This was followed by legislation in the Banking Reform Act 2013 to replace the Approved Persons Regime for banks, building societies, credit unions and PRA-designated investment firms with a new regulatory framework for individuals.
While the Senior Managers Regime will ensure that senior managers can be held accountable for any misconduct that falls within their areas of responsibilities, the new Certification Regime and Conduct Rules aim to hold individuals working at all levels in banking to appropriate standards of conduct.
The Senior Managers Regime focuses on individuals who hold key roles and responsibilities in relevant firms. Preparations for the new regime will involve allocating and mapping out responsibilities and preparing Statements of Responsibilities for individuals carrying out Senior Management Functions. While individuals who fall under this regime will continue to be pre-approved by regulators, firms will also be legally required to ensure that they have procedures in place to assess their fitness and propriety before applying for approval and at least annually afterwards.
The Certification Regime applies to other staff who could pose a risk of significant harm to the firm or any of its customers (for example, staff who give investment advice or submit to benchmarks). These staff will not be pre-approved by regulators and firms’ preparations will need to include putting in place procedures for assessing for themselves the fitness and propriety of staff, for which they will be accountable to the regulators. These preparations will be important not only when recruiting for roles that come under the Certification Regime but when reassessing each year the fitness and propriety of staff who are subject to the regime.
Martin Wheatley, FCA chief executive, commented:
"Today we have given clarity on rules that will embed personal accountability into the culture of The City. New conduct rules will add further momentum to improving standards across the industry."
Andrew Tyrie MP, Chairman of the Treasury Committee and former Chairman of the Parliamentary Commission on Banking Standards, said:
“When Certification was first proposed by the Banking Commission, neither the Government, nor the regulators, seemed to take much interest in it. Unlike the SMR, the Government did not make any legislative provision for it at all. And the regulators took little more than perfunctory interest. Commissioners pressed for it to be considered properly. It is regrettable that it has taken the Forex scandal to demonstrate the crucial role it can and should play.
“Banks should know already which of their staff can cause serious harm to the bank or its customers. If banks are doing their jobs properly, the Certification Regime will not therefore place a significant additional burden on them. Taken together, and sensibly implemented, Certification and the Senior Managers Regime should reduce the regulatory burden compared to the discredited Approved Persons Regime, not increase it.
“It is essential therefore that the regulators exercise judgement. They need to avoid recreating the bureaucratic, box-ticking, back-covering approach that characterised the discredited Approved Persons Regime. They should instead focus on ensuring that those who can do serious harm to the balance sheet are being actively monitored by banks.
“That is why the former members of the Banking Commission called for traders to be included in the Certification regime last November. It is disappointing that the banks had not already identified the risks that these individuals posed, given the appalling misconduct in the Forex market. This suggests that effective implementation of Certification by banks is work in progress. It is welcome that the FCA is now taking action to address this.”
