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Regulator puts culture in the spotlight

28th September 2016

Culture & the SMR

It has now been six months since the Senior Manager’s Regime was implemented across the banking sector.

To mark this milestone the Financial Conduct Authority looks set to propose new rules to further strengthen the SMR and maintain firms’ focus on culture as well as provide feedback on the implementation of new regime so far.

The aim of the proposed new measures will be to reinforce the importance of accountability amongst individuals that are within an organisation’s most senior levels.

Consistently, these new measures will also be part of the regulator’s continued spotlight on creating the right culture within firms. They will also look to build on initiatives that will help the FCA to identify and assess key senior individuals within firms even further.

As such, it looks set that the FCA will shortly consult upon not only Guidance for Senior Managers on the ‘Duty of Responsibility’ but also about extending the conduct rules to all non-executive directors of banks and insurers. The FCA also inform that we should expect to see a Discussion Paper about how heads of legal functions within firms should be treated under the Senior Managers and Certification Regime.

In addition, whilst we await the FCA to put together their feedback upon reviewing a sample of firm’s SMR documentation, the Chief Executive of the FCA, Andrew Bailey has said

“Six months on and, in a great many cases, firms have made a substantial effort to get this right and embrace the importance of the key principles underlying the Senior Managers and Certification Regime, namely responsibility and accountability. Knowing who is responsible for what is critical for firms and regulators and we have seen genuine engagement on this from the Board down.”

“Generally, we have observed that firms are taking their responsibilities seriously and have broadly got the regime right. But we recognise culture change takes time and there is still more to do. So we have to keep a watchful eye on the progress firms are making.”

Whilst it seems many firms have embraced the SMR, it seems that others still have work to do with the FCA advising they have “seen evidence of overlapping or unclear allocation of responsibilities” as well as other firms that “appear to be sharing responsibility amongst more junior staff, obscuring who is genuinely responsible.”  

No doubt additional details will be given once the FCA has published their full feedback which will prove not only insightful to all those that currently fall under the SMR, but to the greater financial services industry, since the SMR is set to be extended to all firms in 2018.

>> Update 29Sep16 - See SM&CR: The Next Steps to Improving Culture <<

Regulatory Spotlight: Culture & Governance

Culture has most certainly been in the spotlight all year with the FCA’s Director of Supervision – Andrew Davidson - giving a speech in the summer entitled ‘Getting Culture and conduct Right: Role of the Regulator’. Culture and Governance also made it into the FCA’s top seven priorities to tackle in their 2016/17 Business Plan.

During his speech, Mr Davidson highlighted three essential underlying ideas of the SMR with regards to culture, these being:

1. that senior managers are clearly accountable for decisions and conduct that falls within their areas of responsibility and that the responsibility for conduct does not fall through the cracks or become shared so widely that no one feels accountable for it.

2. that senior managers are clearly accountable for ensuring that they have taken reasonable steps, for example, through governance and control frameworks, to ensure that the decisions made by individuals in their areas are appropriate.

3. that all senior managers are clearly accountable for ensuring that individuals working at all levels in their areas of responsibility meet appropriate standards of conduct and competence

It seems that the FCA have not always been confident that responsibilities have been allocated to the most senior and/or most appropriate individual – highlighted in both Mr Davidson’s speech and in the most recent FCA comments following the SMR’s six month anniversary.

With this in mind, firms should be reminded that ‘If you delegate leadership and decision making then you are still accountable for oversight of those managers.’

Read our latest articles, news and views affecting compliance and regulation in the UK Financial Services Industry.