On Monday 7 March 2016 the Senior Managers Regime (SMR) and Certification Regime (CR) came into force. The first swath of firms in the regime have invested time and effort into meeting the new regulation but in the eye of the public, what has changed? At the moment, very little as the consequences of SMR will be realised over the coming months and years as we see how the regulators enforce the regime.
There is little doubt that the new regulation will form part of the routine supervision and thematic reviews. The Management Responsibilities Map and Statements of Responsibilities are highly likely to form part of the pre-visit discovery, allowing the regulator to pinpoint the accountable individuals. This is a primary objective of the regulation and has been introduced in direct response to the conclusion reached by the Parliamentary Commission on Banking Standards (PCBS) that:
‘…many bankers, particularly at senior level, have been allowed to operate with very little personal accountability. When things went wrong, individuals claimed ignorance or hid behind collective decision-making.
…there was often little realistic prospect of enforcement action against senior individuals.
This doesn’t mean we are going to see a flurry media headlines with high profile bankers being sent to jail. In fact it is unlikely that anything will emerge in the public domain in the short term as outcome of a supervisory visits are confidential. But it does mean that the regulator will be able to act more swiftly when applying sanctions.
The FCA and PRA published details of their own SMR implementations (they can be found at: ‘FCA Senior Managers Regime’ and ‘PRA Senior Managers Regime’) and even though they include adjustments to accommodate the fact that they are regulators, not financial institutions, their documents set expectations. You can see how ambiguity has been removed and accountability is clear. However, this is only one side of the equation, linking those accountabilities to a timeline of executive decisions and operational events is critical to ensuring the decision maker can be identified. This is a tougher challenge faced by firms and a challenge that Senior Managers want solved.
Senior Managers now face jail and/or an unlimited fine if they:
- take a decision, agree to a decision, or fail to take steps to prevent a decision that causes the failure of a financial institution
- at the time were aware of a risk that the decision may cause the failure.
Senior Managers are understandably nervous about whether their firm has sufficiently robust systems and controls to allow them to be feel confident about their decision making. They will be challenged, pressured, coerced and their mettle as a manager will be truly tested.
We have crossed a line, but it was the start line not the finish line.
 The Parliamentary Commission on Banking Standards (the Commission) was appointed to conduct an inquiry into professional standards and culture within the UK banking sector. The Commission was appointed in response to the LIBOR rate-rigging scandal, which followed the financial crisis and a series of high-profile conduct failures within the UK banking industry.