In the January edition of Newsbite, I looked ahead to the launch of the strengthening accountability in banking exercise on 7 March. This included the new senior management regime (SMR), new certification arrangements, and revised conduct rules applicable to a wider range of individuals. These rules are now all in force for banks, building societies, credit unions and PRA-regulated investment firms. A similar, but not identical, regime applies to the insurance sector.
At a high level, the regulators place great store in the new SMR as a way of bringing about individual accountability among senior managers. The FCA dropped its investigation into bank culture in favour of the new SMR and the work of the Banking Standards Board (BSB), which published its first annual review in March. The Governor of the Bank of England described the BSB as “hugely important to the development of the whole of the banking industry.” The FCA Consumer Panel also published a position paper on banking culture.
We now wait to see what difference the extensive strengthening accountability in banking framework and these other initiatives make in practice. Predictably, media headlines focused yet again on ‘jail for bankers’, despite this being a highly unlikely prospect. More realistically, we are entitled to hope that positive cultural change amongst the big banks begins to take root in reality as well as in public relations.
At a more basic level, all relevant firms have implemented the new requirements against a background of constant change. At the time of writing, the following four items are outstanding despite publication of ‘final rules’ about nine months ago:
- The final picture on regulatory references
As the BSA had urged, the regulators have temporarily shelved the new provisions, in favour of retaining the existing ones, but with wider scope. Time had clearly run out to implement these rules by 7 March and a further consultation paper on regulatory references is due to follow this Summer.
- Changes under the Bank of England and Financial Services Bill
With Royal Assent likely during Q2, and more regulatory rules to follow afterwards, the Bill is expected (amongst other things) to row back from the ‘reverse burden of proof’, and to pave the way for arrangements covering the scope of the conduct rules and breach reporting requirements that are more sensible and proportionate than those previously proposed.
- Other points
There are one or two other outstanding matters, including a consultation in the Summer on whether or not a firm’s legal function should be included in the SMR. This is by no means straightforward because of the potential implications for legal privilege.
- The second phase
And of course, as part of long-term planning, two key elements of the new framework come into effect in March 2017; namely, the extension of the conduct rules to ‘junior’ staff and the deadline for firms to issue certificates under the new certification regime.
Around 2018, similar rules will be rolled out to the other regulated financial services sectors not yet covered by the regime.