There is little doubt that the new Senior Managers Regime and Certification Regime will prompt the Firms to connect the dots between day to day operations and accountability, but it’s questionable whether it will change the culture in Financial Services.
In July 2014 the regulators announced their intention to ‘Strengthen accountability in banks’ in their joint consultation paper FCA CP14/13/PRA CP14/14 that introduced a new regulatory framework for individuals:
- A new Senior Managers Regime (SMR) which will clarify the lines of responsibility at the top of banks, enhance the regulators’ ability to hold senior individuals in banks to account and require banks to regularly vet their senior managers for fitness and propriety;
- A Certification Regime (CR) requiring firms to assess fitness and propriety of staff in positions where the decisions they make could pose significant harm to the bank or any of its customers; and
- A new set of Conduct Rules, which take the form of brief statements of high level principle, setting out the standards of behaviour for bank employees
In a speech in June this year Mark Carney, governor of the Bank of England, referred to the Fair and Effective Market Review (FEMR) that cited a lack of personal accountability and a culture of impunity.
On the whole these new regimes and Conduct Rules will go some way to address the issues that have come to light in the Financial Services industry; but will they really change the culture or will banks pay lip service to what the regulators are really trying to achieve?
Like so many people, I have been infuriated by the events over the last few years that have led to the enormous fines principally against banks. It seems that a rotten core has emerged in the Financial Services and the gentlemanly conduct of an industry where ‘my word is my bond’ has disappeared into a greedy world that revolves around money making at all costs.
“Clearly there are a few people that look for opportunities to beat the system - it is no different in Financial Services than it is to Volkswagen or FIFA.
I don’t believe that ‘one bad apple spoils the barrel’. Thousands of people enter the City of London every day with the intention of doing a good job to the best of their ability. They choose to work in the City because it generally pays better and offers them better prospects of progression. They are not driven by greed but the by the wish to progress and make the most of their career.
The regulator’s objectives seem to be more than just clarity of accountability in the ‘board room’. The new regulation devolves responsibility for certifying the majority of employees as ‘Fit and Proper’ to the Firms for which they work. No longer will the regulator ‘approve’ every person as they do under the current Approved Persons Regime (APER) and there is a risk that this will introduce inconsistency as standards vary from Firm to Firm.
The regulators are under pressure to control their costs and these changes provide the perfect opportunity for them to focus on the senior people and make the everyday policing of the masses the responsibility of the Firm. Firms do not have a choice when it comes to complying with [new] regulation but they do have a choice about the way in which they go about it – the regulators are not prescriptive (ironically so they cannot be held accountable).
I have no idea whether Volkswagen management directed their employees to find ways to pass the emissions tests, or whether FIFA employees were encouraged to influence the bidding process. I do know that it’s down to senior managers to set the tone from the top, to show leadership. This is where the Firms will show their true character; will the edict be to ‘tick the boxes’ and meet the regulation, or will it be to embrace the regulator’s vision of cultural change?
“Accountability will encourage senior managers to make the best decision but leadership will change the culture.