The Real Game-Changer that Sits Behind the Headlines


There’s been a lot of focus in the media recently about the proposed new Senior Managers regime for banks, building societies and investment firms. In fact, I’ve even written about it in my previous 'Senior Managers Under the Spotlight' blog post in October 2014.

Quite rightly so, because, when it’s introduced, it will shift the goalposts significantly in terms of how senior individuals are held to account.

And beneath that, we have the proposed Certification regime, designed to make sure those within the firm who are not senior managers but who are risk-takers, have their fitness and propriety assessed regularly.

But there’s one more level sitting beneath this, that has caught less of the media spotlight, but it could be argued, is the most significant change of all.

This is because, for the first time, the majority of employees working in these firms will be potentially at risk of enforcement for their actions.

If that sounds heavy, it’s because it is heavy.

In case you haven’t read the FCA and the PRA’s joint consultation on this regime, I’ll explain what this all means.

Both regulators intend to introduce a new set of Conduct Rules which will replace the existing principles and guidance for Approved Persons. As far as the PRA is concerned, all individuals captured under the Senior Managers and Certification regimes will be subject to these rules. Fair enough.

But listen to what the FCA has to say.

It believes that a far wider population of a firm’s employees has the potential to impact its statutory objectives. So much so that in effect, all employees, save for those in ancillary or support functions, will be subject to these rules.

So, if for example, you work for a UK bank and you are employed directly in a business role (and not, for example as a receptionist of post room worker), you will be captured within the scope of these rules.

And when the FCA says all employees, it means all employees. There’s no accounting for seniority in this consultation.

So what are the rules in question?

As far as the FCA is concerned there are five “individual rules” that everyone must follow:

Rule 1: You must act with integrity
Rule 2: You must act with due skill, care and diligence
Rule 3: You must be open and cooperative with the FCA, the PRA and other regulators
Rule 4: You must pay due regard to the interests of customers and treat them fairly
Rule 5: You must observe proper standards of market conduct.

At first glance these don’t appear too onerous. After all, these are only points that are in the main already covered in the Principles for Businesses, so surely firms would already have these embedded into their cultures?

That may well be the case. The big difference now is that if individuals within firms are found to have breached any of these rules, firms are expected to report this fact to the FCA. And that individual could be subject to enforcement action.

The FCA has tempered this slightly, to be fair. It has said that it will only look to take enforcement measures in proportion to individual responsibilities and the threat posed to consumers and the integrity of the financial markets.

But the fact remains that in theory, anyone in a firm could be subject to enforcement action for wrong-doing. And that requires a serious shift in thinking both from senior management and the majority of employees.

It’s no wonder, therefore, that the FCA is allowing a period of twelve months between the commencement of the new regime and the date the Conduct Rules will apply. This is to ensure that firms have enough time to properly train all individuals, for many of whom this responsibility will be completely new.

So, training is not just desirable in this instance – it’s mandatory.

Although the commencement date for the new regime has not yet been issued, firms would be well advised to start thinking about how they deal with the issue of training. In the banking sector, this is a particular significant issue, given that the numbers of affected employees will be in the thousands for the larger firms.

The whole issue of senior managers, certification and conduct rules presents a big challenge to firms. At the same time, the threat of enforcement action is a very real one.

So how do firms deal with such threats and challenges?

One way is to make sure that their training requirements are dealt with effectively.

And that is the subject of Industry Events Online’s first free webinar, which takes place on Wednesday, 19 November at 2.30 pm.

If you would like to find out more about the sorts of threats coming from regulation that can be addressed by training, and would like to understand how these can be tackled, then please register for this event.

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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