More top managers at risk under proposed new UK financial services rules

New rules holding senior managers responsible for corporate failings will be extended to all UK financial services firms from as early as next year, under new proposals from the Financial Conduct Authority (FCA). The Senior Managers and Certification Regime (SMCR), which was first rolled out to banks in March, will increase the risk carried by senior managers. It will hold them accountable for ensuring their teams are fit and proper, and for any failings within their line of responsibility. The FCA proposes the regime is extended to include insurers and brokers. Jonathan Davidson, executive director of supervision at the FCA, said: “This is about individuals, not just institutions. The new conduct rules will ensure that individuals in financial services are held to high standards, and that consumers know what is required of the individuals they deal with. “The regime will also ensure that senior managers are accountable both for their own actions, and for the actions of staff in the business areas that they lead,” he added. Senior managers will need to be approved by the FCA and will appear on its register. The FCA said the new regime “will essentially replace the Approved Persons Regime”. The responsibility for approving employees at financial services firms below senior management level will now fall on the companies themselves, rather than directly to the regulator. Once a year, firms will have to certify the fitness, skill and propriety of individuals whose jobs have a significant impact on consumers or other firms. The new rules will apply to the majority of financial services firms. The UK’s largest and more complex regulated firms – less than 1% – will work to an enhanced regime featuring some additional requirements including responsibility maps and handover procedures. They will also have to ensure a regulated senior manager is in place for every area of the firm. Exemptions will follow the existing rules under the Approved Persons Regime. For insurers, the SMCR will replace the existing Approved Persons Regime and the Senior Insurance Managers Regime applied by the Prudential Regulation Authority. Matthew Rutter of law firm DAC Beachcroft said the new rules follow on closely from a recently introduced senior managers’ regime applied to insurers. "Insurers have barely implemented the current Senior Insurance Managers Regime and now face further changes and an extension of its scope. A major change will be the certification of key function holders who are not currently within the regime, including those responsible for underwriting, claims, capital and liquidity management, IT, operational systems and controls, reinsurance and investment management, as a minimum. Insurers will be responsible for identifying which individuals need certification and for satisfying itself that they are fit and proper. It is delegation of regulation – the burden falls on the insurer in the first instance to get it right," Mr Rutter said. Matthew Connell, director of policy and public affairs at the Chartered Insurance Institute, said the new approach is “common sense” and a positive start to rolling out the regime. “The FCA has introduced a segmented approach to the regime, which has light-touch requirements for ‘limited scope’ firms such as sole traders and firms which sell general insurance, but not as their main business. Most other financial advice firms and general insurance brokers will be ‘core firms’, and will have similar responsibilities to the ones they already have under the FCA’s current Approved Persons Regime,” he explained. The FCA said the new rules are intended to raise market integrity and build a culture of personal responsibility among staff at all levels, drawing clear lines of responsibility. “Culture and governance in financial services and its impact on consumer outcomes is a priority for the FCA. The extension of the Senior Managers and Certification Regime is key to driving forward culture change in firms,” Mr Davidson said.

More top managers at risk under proposed new UK financial services rules

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