The FCA issued the proposals at the end of July and according to research from law firm Cleveland & Co, the number of managers that can be held personally responsible for misconduct will increase from 3,000 in 2016 to 72,000 in 2018.
Whereas previously the SM and CR, which is used to increase accountability across financial services staff, covered only banks, building societies, credit unions and PRA-designated investment firms, it will apply to all senior staff at FCA-authorised companies, including financial intermediaries.
The aim of the new regime is to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence.
The FCA proposes three parts to the Senior Managers Regime:
1. Five Conduct Rules that will apply to all financial services staff at FCA authorised firms. This simple set of rules means that individuals must act with integrity, act with due care, skill and diligence, be open and cooperative with regulators, pay due regard to customer interests and treat them fairly, and observe proper standards of market conduct.
2. The responsibilities of Senior Managers will be clearly set out and, should something in their area of responsibility go wrong, they can be personally held to account. The Senior Managers will be approved by the FCA and appear on the FCA Register.
3. Under the Certification Regime, firms will certify individuals for their fitness, skill and propriety at least once a year, if they are not covered by the Senior Managers Regime but their jobs significantly impact customers or firms.
Jonathan Davidson, executive director of supervision – retail and authorisations at the FCA, said: “This is about individuals, not just institutions. The new Conduct Rules will ensure that individuals in financial services are held to high standards, and that consumers know what is required of the individuals they deal with. The regime will also ensure that Senior Managers are accountable both for their own actions, and for the actions of staff in the business areas that they lead.”
The FCA has stated that it is committed to ensuring that the regime is proportionate according to the size of the firm, and therefore proposes applying a baseline of specific requirements to all regulated firms, called the ‘core regime’.
For the largest and most complex firms (fewer than 1% of regulated firms) the FCA proposes some extra requirements, under the ‘enhanced regime’.