FCA instigates ruling to strengthen individual accountability; some non-executive directors subject to regulatory oversight


Following a detailed consultation across the financial services industry which took the form of a consultation paper which The FCA and Prudential Regulation Authority (PRA) issued in July and December 2014 on a new regulatory regime for individuals in banking, designed to strengthen individual accountability. industry and with stakeholders it was also decided the regime would not apply to those non-executive directors (NEDs) who do not perform delegated responsibilities.

Martin Wheatley, Chief Executive of the FCA, said: “Our approach is driven by wanting to ensure firms are managed in a way that reflects good governance and promotes the right culture and behaviours. Having a narrow SMR will also allow the FCA to focus regulatory resources on those responsible for key business areas and board committees. We want those senior individuals to be held accountable for the decisions they make and oversee. This is what people inside and outside the banking sector expect.

“NEDs play a vital role in providing challenge to and an independent oversight of the executive directors. Including all NEDs in the new regime would risk the unintended consequence of changing the whole nature of this vital role.”

The NED roles that will be in scope of the SMR are Chairman, Senior Independent Director, along with the Chairs of the Risk, Audit, Remuneration and Nominations Committees.

The individuals performing these roles will be subject to all aspects of the Senior Managers Regime, including regulatory pre-approval, the FCA’s and PRA’s new conduct rules and the presumption of responsibility. Those NEDs who fall outside of the SMR will no longer be subject to regulatory pre-approval, will not be subject to the conduct rules nor the presumption of responsibility.

Within the regime, senior executives will be expected to take accountability for the conduct of the business for which they are responsible. They are in a position to exercise a strong influence on the business and its culture through incentives and the messages that they give to staff.

This clear line of accountability can have a positive effect on the culture of firms and on outcomes for consumers and markets.

This paper also includes general guidance on the role and responsibilities of NEDs as well as consulting on the FCA’s approach to NEDs in Solvency II firms, which the FCA proposes to align to the approach being taken for deposit takers and PRA designated investment firms.

The FCA and PRA also published a consultation on proposed whistleblowing rules for institutions which include, among others, banks.

The FCA has been the subject of criticism from government authorities, spurring a Britain’s financial services regulator, the Financial Conduct Authority (FCA) has begun a complete ground-up revision of its methodology recently, ranging from investing in new means of monitoring the modern, electronic markets that operate today, to standing down certain senior regulatory officials in order to restructure the organization to become more effective.

In December last year, the FCA’s CEO, Martin Wheatley, came under severe criticism in a report issued by Simon Davis, a senior lawyer at prominent British law company Clifford Chance, lambasting the FCA’s recent methods of handling large scale transgressions within the financial services sector, thus Mr. Wheatley, along with a number of senior-level colleagues, faced forfeiting their annual bonus.

Following in the footsteps of the US Securities and Exchange Commission (SEC) which operates a whistleblowing policy, this includes a requirement for firms to appoint a whistleblowers’ champion, who will be responsible for overseeing the effectiveness of internal whistleblowing arrangements, preparing an annual report to the board on their operation, and reporting to the regulator where an employment tribunal finds in favour of the whistleblower. The importance of robust internal whistleblowing procedures within firms was a key conclusion of the Parliamentary Commission on Banking Standards’ report.

For the official announcement from the FCA, click here.

Related News

arrow

FCA instigates ruling to strengthen individual accountability; some non-executive directors subject to regulatory oversight

5

Send this to a friend