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FCA clarifies ‘rigorous’ pursuit of accountability and expectations on integrity

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  • 21/03/2018
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FCA clarifies ‘rigorous’ pursuit of accountability and expectations on integrity
The Financial Conduct Authority (FCA) has detailed its approach to supervising regulated financial firms, promising “rigorous” pursuit of individual accountability.

 

In two reports the FCA spelled out its approach to supervising and enforcing the conduct of senior managers in regulated financial firms.

This included how the Senior Managers and Certification Regime (SM&CR) will be implemented and also noted that it expects regulated persons to take action to mitigate any harm as soon as they believe something has gone wrong.

In its enforcement document, the FCA noted that firms and individuals should not wait for an investigation to end before acting in a way they think is right and that doing so could reduce potential sanctions.

“Firms that take action to address harm caused by serious misconduct demonstrate integrity,” the regulator said.

“Honest action in response to wrongdoing, especially where consumers may have suffered losses, builds trust and confidence and helps our markets operate well.”

It said this would not prevent an investigation, but that “we will acknowledge and give substantial credit to wrongdoers who speedily address wrongdoing when we decide on appropriate enforcement action.”

It later added: “If firms and individuals fully account for any harm caused, including putting it right where there are reasonable grounds to do so, we will consider this when applying sanctions. In extraordinary cases, it may determine whether a sanction is required at all.”

 

Senior managers

In a recent speech, FCA chief executive Andrew Bailey (pictured) said that the SM&CR will be “shortly” implemented for almost every regulated firm.

Once the SM&CR is extended to other regulated financial firms, senior staff will require FCA approval to ensure they are fit and proper to perform that role.

Each senior manager in scope of the SM&CR must have an agreed statement of responsibility, which clearly sets out the areas of the business for which they are accountable – meaning that failure to uphold their responsibilities could result in fines or prohibition.

Where appropriate, senior managers will also be required to give personal commitment that a specific action will be or has been taken.

Where harm or misconduct has been identified, the FCA will require the board to identify the senior individual, or individuals responsible.

 

Remuneration misincentives

The FCA further clarified that it will assess the remuneration policies to see whether they create misincentives and the potential to cause harm.

“The SM&CR is a fundamental change to the landscape,” read the report.

“We will pursue individual responsibility rigorously.”

In addition, the certification regime also applies to non-senior employees whose roles make it possible for them to cause “significant” harm to a business unit of a firm or its customers.

Alongside the documents, the FCA also set out response forms, asking whether each document explains its approaches clearly enough, and whether there are related issues which could benefit from further clarification.

You may access the FCA’s approach to supervision here, and its approach to enforcement here.

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