Senior Managers under the Spotlight - Part 2: a New Regime - and Lots More of Us Could Be along for the Ride

Last week, I wrote about the new Fundamental Rules introduced by the PRA as part of its new Rulebook, and in particular, what this change means for senior management.

On their own, these new rules could be seen as enough to get to grips with, what with the small matter of trying to run a business as well.

But for senior managers working in the banking sector, there are actually even bigger fish to fry.

These come in the form of the recently-announced Senior Managers Regime (or SMR for short) which is currently subject to a consultation process, due to close at the end of the month.

The changes are far too detailed to cover in a short blog post. Anyone wanting to learn the details should either go to the FCA and PRA consultation papers, or read one of the many technical papers you can access online. What I want to do is pick out a handful of points, some of which may not have necessarily grabbed the headlines.

I do this because I want to demonstrate three very important things to you.

1. These Changes Represent a Significant Cultural Shift for Senior Managers

Why? Because firstly, under the SMR, senior managers will need to get to grips with a reversed burden of proof. Put simply, this means that unless they can demonstrate they took action to prevent regulatory failures from taking place, they will be held accountable by the regulators. At the moment, enforcement actions take place when individuals are proved to have been directly concerned with a breach, so this is a major change which those affected will need to understand thoroughly.

Secondly, firms will need to document their governance arrangements, in the form of “Responsibilities Maps”, in particular, team structures, reporting lines and areas of responsibility for each senior manager. Firms must be prepared to share these with the regulators if necessary, so there’ll be nowhere to hide if governance arrangements aren’t up to scratch.

2. It’s Not Just Senior Managers That Are Affected

Aside from the creation of some new senior functions, the existing approved persons in firms will be “grandfathered” across to become senior managers under the SMR. The bad news is that both PRA and FCA want to extend the accountability to certain employees within firms, by introducing a new Certification Regime. This means people in roles that aren’t senior management, but who could represent a risk of harm to either the firm or its customers, will be subject to certification by the firm to carry out their role. These could include certain individuals in customer-facing roles (such as those currently holding the CF30 Controlled Function), and those supervising them.

In practice, this means that firms will have to satisfy themselves that those individuals defined as needing certification have met the necessary requirements to carry out the role. These are set out in a revised set of Conduct Rules which are similar to the existing Approved Persons Statements of Principle. But all requirements will have to be both met and demonstrated on an ongoing basis. It goes without saying that qualifications and ongoing training and competence for each affected role are key components here.

3. Senior Appointments May Become Difficult

Given the greater degree of accountability that Senior Managers will have when the new regime comes into effect, an unintended consequence may be that people shy away from taking such appointments. Or, because the rules will only apply to UK banks, people may instead choose to take roles with overseas banks operating in the UK. Either way, some firms may find it more difficult to recruit for the more senior roles (and actually for some more junior roles too, if people don’t fancy closer scrutiny from the regulators). This can only be overcome if firms can clearly demonstrate that they offer a significant degree of support to incoming senior managers. For example, robust governance arrangements, a strong compliance culture, and of course, structured and ongoing training and development in line with regulatory expectations.

I could go into so much more detail about how this entire regime is going to look. That’s because it’s such a big change for the banking sector to get to grips with. And the bad news for insurers is that it looks like a similar regime could be coming down the tracks, as I wrote last week. Throw UK insurers into the mix, and this is a fundamental change, affecting large numbers of people in a significant number of firms. My hope is that when the implementation date is finally announced, firms will have the requisite degree of notice to make their changes.

And one thing’s for sure – training will definitely need to take centre-stage with this one.

First of all, there’s internal training for those affected. Compliance, risk, HR, line managers. All of these will have a role to play in implementing the regime, so they need to understand the rules, and their specific requirements.

Then there are the senior managers themselves; the ones who’ll carry the can. They’ll need a great deal of support, coaching and instruction to make sure they know and understand exactly what they’re taking on.

And as for those subject to the Certification Regime? This may well be uncharted territory for many of them. Learning and understanding the requirements could well be scary, so training plans need to make sure these are clearly explained, and that some of the fear can be removed as well.

All of this is before you even get started on personal training and development plans for those in affected roles. After all, these are now going to be more visible to the regulators than ever before.

Firms will need to co-ordinate their efforts to make their training as effective as possible. And their efforts will be best served by accessing the full range of materials and subject areas covered by a number of training providers.  


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.

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