The strengthening accountability in banking exercise began with an investigation by the Parliamentary Commission on Banking Standards, following the financial crisis of 2008, and certain high-profile conduct failures in the UK banking industry. These included PPI mis-selling, the LIBOR rate-rigging scandal, and serious misconduct in relation to foreign exchange.
The overall aim of this much-needed exercise was to rebuild trust, to increase personal accountability, and to introduce industry-wide standards. Following the Commission’s report, changing banking for good, in June 2013 and a series of regulatory consultations that followed, the Prudential Regulation Authority and the Financial Conduct Authority published their ‘final’ rules for deposit-takers (banks, building societies, credit unions and PRA regulated investment firms) in mid-2015.
The rules covered senior managers and other staff whose activities could have a significant impact on financial stability of a firm or its consumers. The exercise also included conduct rules for more junior staff. The regime is called the senior managers and certification regime (SM&CR) or, for short, ‘the accountability regime’. A major challenge for firms is that this enormous scheme is much more than one of regulatory compliance. It introduces many new concepts and has far-reaching implications for corporate governance within firms, for compliance, and for HR cultures and practices.
The Building Societies Association supported the exercise from the outset, engaging actively and constructively with the regulators to help ensure a robust and proportionate accountability regime. Our members have been very diligent in implementing the wide-ranging requirements. However, despite the fact that the regulators published ‘final’ rules in Summer 2015, further regulatory ‘adjustments, optimisations and modifications’ mean that, even near the end of 2017, the exercise is still not complete for deposit-takers.
The FCA recently consulted (in CP17/25) on extending the regime to other sectors (FCA ‘solo-regulated firms’) and proposed yet more modifications for deposit-takers too. The BSA supports the extension to other sectors because, while serious misconduct in the banking sector was the focal point of the accountability exercise, no sector has a monopoly on either poor or good conduct. It is therefore right for the regulators to apply broadly consistent principles, in a proportionate way, across the whole of their regulated communities.
However, with so much detailed consideration and implementation having taken place over an extended time-period, we were surprised that the FCA should, at this late point (and in a consultation primarily aimed at the separate community of FCA solo-regulated firms), canvass even more changes for deposit-takers. This continuing process of proposing further modifications, adjustments and optimisations is potentially a problem for three important reasons –
- first, after such a lengthy and detailed process, firms should be able to get on with the accountability regime on a ‘business as usual’ basis, without constantly having to review and change their arrangements because of further regulatory modifications. They need to be allowed to get on with running their businesses in a prudential and customer outcomes-focused fashion, rather than have management time constantly diverted to regulators’ adjustments and modifications (all of which precede formal regulatory reviews of the regime)
- second, while the regime is in a continuous ‘work in progress’ state, it is difficult to see how the PRA and the FCA can launch serious thematic reviews examining whether the regime has worked well or not, and whether or not modifications predicated on actual experience are required, and
- third, there is a risk that modifications that are ever more granular will prove counter-productive to a key objective of the strengthening accountability in banking exercise, ie to provide clarity in relation to personal accountability.
In the light of these concerns, the BSA calls on the regulators to draw a line under any further changes to the SM&CR for deposit-takers from early 2018, and then give deposit-takers a reasonable opportunity to embed the regime fully before the regulators review it as a whole.
It is now ten years since the financial crash. The accountability regime is a very strong and appropriate response. Let’s get on with it.
This blog was originally published as part of Newsbite - the BSA's monthly industry newsletter. You can sign up to receive Newsbite in the 'My Account' area of the website.