UK regulators seek to further strengthen culture and accountability standards

A package of measures to strengthen regulatory culture and personal accountability in the UK

The ‘Senior Managers and Certification’ (SM&CR) regime was implemented in the UK across a range of firms from March 2016, including banks, credit unions and dual-regulated investment firms. And from May 2016, but linked to this new accountability regime, has been a new ‘duty of responsibility’. At the end of September, only some six months after the SM&CR regime was rolled-out in the UK by its regulators (PRA and FCA), they have acted to disseminate their views and concerns around its initial implementation and the associated ‘grandfathering’ mechanisms. Accordingly, a number of sector-specific feedback statements have been issued to outline initial findings including some gaps in the proper management of allocation of related functions and responsibilities.

But there are also further rule and guidance proposals intended to strengthen the SM&CR regime, and to emphasise the importance and personal culpability placed on the personnel at the most senior levels of an organisation. As expected these changes will reinforce the continued focus and importance on the firms’ culture, and the role of senior individuals with key roles and responsibilities to perform and to act with due competency and integrity as the important owners and drivers behind successfully achieving and delivering the appropriate corporate standards and outcomes across their firms. These changes should therefore help clarify and reiterate how UK regulators are likely to identify, judge and assess the conduct, performance and accountability of the individuals concerned going forward.

Amongst the new provisions and rules proposed are enhance provisions and expectations around the extended background information firms will be expected to obtain and provide to regulators as they select and appoint persons to key roles and functions. So for example, expect this to be used to help inform regulatory decisions around the approval and registration of the individuals concerned. In addition, there is new guidance as to how the UK’s conduct regulator (FCA) will enforce the new ‘duty of responsibility’, as well as specific plans to extend the scope of conduct related rules applied to non-executive directors across the banking and insurance sectors

Whilst such matters have a more direct and immediate impact on certain types of firm e.g. banks, building societies, credit unions and other dual-regulated entities, it should not be overlooked that their purpose and practical implications must still be of close interest to any other regulated firms too, reflecting the UK Governments commitment to rolling-out the core elements and principles of the ‘Senior Managers and Certification’ regime across all regulated businesses in due-course.