U.K. regulators set out plans for ensuring senior staff of financial-services firms can be held to account for misconduct on their watch, extending rules already in place for banks to almost all firms.
The Senior Managers and Certification Regime is a response to the 2008 crisis, which highlighted how responsibilities at banks, insurers and other companies weren’t clearly delineated. That allowed highly placed individuals to dodge responsibility for misconduct by their staff such as sales of unnecessary insurance products or rigging of benchmarks that have resulted in billions of dollars being paid out in fines and remedies.
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The Financial Conduct Authority proposed applying five conduct rules to all staff at firms it supervises. It will also demand that senior managers’ responsibilities are clearly set out so that they can be held responsible for their own and their staff’s actions. The proposals follow a 2015 decision by the U.K. Treasury to apply the rules to all sectors of the industry.
“This is about individuals, not just institutions,” Jonathan Davidson, executive director of supervision for retail and authorizations at the FCA, said in a statement. “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.”
Firms will have to certify individuals who deal with consumers for their fitness, skills and propriety at least annually, the FCA said.
The FCA said its five conduct rules mean all financial-services staff at the firms it authorizes 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.”
The Bank of England’s Prudential Regulation Authority, which oversees the biggest firms, said it was focusing its efforts on ensuring “there is an effective governance system with a clear allocation of responsibilities within firms,” and that it wanted to be certain it was able to hold individuals to account.
The regime “has teeth, and could involve a lot of heavy lifting on the side of businesses to implement, including for insurers,” Emma Rachmaninov, senior associate at Freshfields Bruckhaus Deringer, said in a statement. “Firms with headquarters outside of the U.K. or with significant management involvement from group level face some of the biggest challenges, as they work to ensure that their governance structures fit the new regime.”
The PRA said it will publish its final rules in a policy statement next year. The rules won’t come into force until the Treasury sets a commencement date.
—With assistance from Suzi Ring.
— Check out NAPFA’s CFP-Only Stand: A Step in the Wrong Direction on ThinkAdvisor.