Sectors now included in the regime include insurers, investment firms, asset managers, insurance and mortgage brokers and consumer credit firms.
The new policy requires firms to submit "robust documentation" on the scope of senior managements' responsibilities and introduces a statutory requirement for senior managers to take "reasonable steps" to prevent regulatory breaches in their areas of responsibility.
Firms will also be required to certify as 'fit and proper' any individual who performs a function that could cause significant harm to the firm or its customers, both on recruitment and annually thereafter.
The Bill also provides for the PRA and FCA to be able to make Rules of Conduct applying to non-executive directors. However the Bill removes an existing obligation requiring banking sector firms to report all known or suspected breaches of rules of conduct by any employees subject to those rules to the regulators. It admitted that this is potentially a very costly obligation for firms, especially larger firms which employ large numbers of staff, as they have to put in place detailed systems and controls to ensure compliance.
The government said the application of the SM&CR to the whole financial services industry brings in a "stronger, comprehensive regime across banking and other financial services, enables the effective and efficient regulation of groups with a variety of financial services firms within them, and supports a level playing field for competition". The report also highlights the importance of removing opportunities for regulatory arbitrage by ensuring that the same high standards apply in both the banking and the so-called ‘shadow banking’ sectors.
Tracey McDermott, acting chief executive of the FCA, said:
"Extending the Senior Managers’ and Certification Regime is an important step in embedding a culture of personal responsibility throughout the financial services industry.
"While the presumption of responsibility could have been helpful, it was never a panacea. There has been significant industry focus on this one, small element of the reforms, which risked distracting senior management within firms from implementing both the letter and spirit of the regime. The senior managers' and certification regime is intended to deliver better decisions to help avoid problems arising. We remain committed to holding individuals to account where they fail to meet our standards."
