FCA and PRA introduce new accountability regime

The Financial Conduct Authority, alongside the Prudential Regulation Authority, have today announced a new accountability regime for senior managers in insurance companies and UK branches of non-EEA banks.

Related topics:  Finance News
Rozi Jones
13th August 2015
FCA

The new regime sets out the standard of behaviour expected of those in positions of responsibility. Under the new regime, senior managers will be held individually accountable for the areas they are responsible for.

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 ensure individuals working at all levels in banking maintain appropriate standards of conduct.

However the changes will also reverse the ‘guilty until proven innocent’ rule for banking bosses. The burden of proving misconduct will now fall on the regulators, superceding the ‘reverse burden of proof’ which currently exists, requiring bankers to prove they were unaware of any wrongdoing.

The FCA has also set out final rules for the approved persons regime for individuals working in Solvency II firms. These changes are an important part of the overall drive to raise standards of individual conduct across the financial services industry. These rules take into account provisions in the Financial Services (Banking Reform) Act 2013 that apply to insurers, changes that the PRA are making to their approval regime for these firms, and requirements in Solvency II around the governance of firms and the fitness and propriety of key function holders within them.

The PRA intends to implement a parallel accountability regime for insurance companies. This regime is tailored to the differing business models and associated risks of insurers, compared with those of banks.

The PRA has also published final and near final rules on the application of the Senior Managers Regime to UK branches of non-EEA banks. These rules are tailored to reflect the characteristics of non-EEA branches and are aligned with the PRA’s approach to branch supervision.

Andrew Bailey, Deputy Governor, Prudential Regulation, Bank of England and CEO of the PRA, said:

“The simple principle that you can delegate tasks and work, but you cannot delegate responsibility for the safety and soundness and conduct of your firm must become embedded at all levels of banks and insurers. Today’s publications provide the certainty for firms to implement all necessary changes to achieve this objective.”

Martin Wheatley, Financial Conduct Authority chief executive, commented:

"Today’s rules are the latest changes aimed at embedding personal accountability in the culture of financial services and are a crucial step in rebuilding public trust.”

Michael Ruck, a senior financial services enforcement lawyer at Pinsent Masons and formerly with the FCA, said:

“The regulators’ clear aim is to hold individuals accountable for the failings in areas for which they have taken responsibility. Whilst the reverse burden of proof is not included in the insurance regime, the statement that “senior managers will be held individually accountable for the areas they are responsible for” puts down a clear marker that individuals will need to be able to evidence the steps they took to meet the relevant regulatory requirements. Any senior manager responsible for an area in which there is a regulatory breach will be for the regulatory high jump.

“Only time will tell if the Policy Statements issued today regarding the Senior Insurance Managers Regime provide the clarity and certainty aimed for by the UK regulators. Whilst it does provide some clarity around the application of the regime, including the requirements applicable to individuals at a Group Entity, the role of NEDs and the various key functions, there continues to be room for some interpretation and flexibility in how firms apply the requirements. This will require input from the business and external advisors culminating in a conversation with the regulators to identify their view on the firm’s proposals for application of the regime.”

More like this
Latest from Property Reporter
Latest from Protection Reporter
CLOSE
Subscribe
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.