It’s Time for Senior Managers to Get Serious; and to Be Trained

The financial services industry is gearing up for yet another momentous change, which effectively starts on 1 January next year – so no time to relax after Christmas on this one!

A question of accountability

I doubt that it’s news to many of you that there are two new regimes being introduced for the regulation of approved persons within major financial services businesses. The first of these is the Senior Managers’ Regime, aimed at the most senior people in banks, building societies and designated investment firms.

This has been designed in response to a desire to increase individual accountability for those running these organisations; to correct the perception that there was not enough control at the top, leading to the credit crisis in the late 2000s.

The concept here is to introduce a reverse burden of proof, or to put it in plain English “guilty until proven innocent”. Firms will have to state the areas of governance within each business that the particular senior manager is responsible for, and if a breach of regulations occurs in this area, then the senior manager has to be able to prove that the controls in place within his or her sphere of influence. If not, then there is a risk that enforcement action will follow, both against the firm and the individual.

Similar, but not quite the same for insurers

In the insurance industry, the regulators (the PRA and the FCA) have been keen to introduce a regime that also increases the level of focus and accountability of those running these businesses (but without the same reverse burden of proof as for their banking counterparts). There is an additional driver here in the form of Solvency II, which is bringing in additional requirements in the form of a System of Governance, as well as additional requirements for assessing the fitness and propriety of key individuals.

The clock is ticking

The regulators have confirmed that the official start date for the new regimes is 7 March 2016, but that doesn’t mean that firms can wait until next year to start making changes. There are a number of components that need to be addressed before this date arrives.

For a start, firms need to have carried out fitness and propriety checks for those who qualify under the new regime as approved persons.  In addition, those people who, in the banking sector, are classed as certificated individuals (briefly, those who are not approved persons, but are still deemed to be risk takers in the firms) will also be captured by this requirement. The same goes for key Function Holders under the Solvency II Regime (i.e. those who are not approved persons but who hold positions of influence over the firm’s operations).

Secondly, firms will need to have settled on their governance structures by the end of the year. The regulators have laid down a number of prescribed responsibilities that need to be allocated amongst the senior management, and these will need to be allocated to the most appropriate individual.

In addition, the existing approved persons will need to be mapped across to the new designations of approved persons laid down by both regulators. This exercise is known as “grandfathering” and will need to be completed by the start of February at the latest. Whilst this may seem like a simple exercise, the devil is in the detail, and the responsibilities of each approved person must be agreed in advance, to ensure that the regulators don’t raise any objections when the grandfathering application is made.

And on top of that, for Solvency II firms, a Governance Map needs to be completed by the end of the year, showing every area that the approved person and the Key Function Holder is responsible for.

And not forgetting the NEDs

The other point to mention is that Non-Executive Directors (NEDs) are also included in this new regime and will be subject to similar rules in terms of accountability and responsibilities, as their executive counterparts.

Training is essential

The point of this blog post is not to go into the technical detail of the regimes – this is far too detailed a subject to cover in a short post, and there is plenty of material available covering this in more detail.

The point is that there is now very little time left in practice before the new regime starts, and if this has not been dealt with already, the time is right to ensure that everyone who is captured by the new rules understand what is expected of them, knows what roles they’re taking on, and how to carry them out.

This can be done in a number of ways. Firstly, by attendance at one or more briefings that will no doubt be held by external training providers over the next few months.

The second one is by sending selected delegates to attend more formal training courses on the subject.  Whether you work in banking or insurance, there is likely to be an increase in the number of courses available, so taking advantage of these would be sensible.

The board that needs to be briefed

There’s one overriding reason why such action is important – at the top of all these firms is a board of directors who will be anxious to understand what this new regime will mean for them, both personally and collectively. The number of opportunities to interact with them may well now be running low, and those who have been asked to provide briefings will really need to know their subject matter. One particular group of individuals who may need special attention is the NEDs, especially as the opportunities to interact with them may be much more limited than for the permanent senior management.

Perhaps in this case, a bespoke program of briefings provided by an external provider may be the most appropriate way to go.

So, whichever way you choose to get your senior managers ready for the changes to come, the lack of time left means it’s more important than ever to use the tools available to make the process easier.  


Martyn Oughton    

By Martyn Oughton a Professional Member of the International Compliance Association (ICA).  Martyn now writes a regular blog for Industry Events Online focusing on the importance of training in all aspects of compliance. Read Martyn's other publications at Martyn's Writers' Residence website.

To keep up to speed with new events and blog posts sign up to the Industry Events Online weekly newsletter.