FCA publishes findings of Senior Managers and Certification Regime stocktake report

On 5 August 2019, the Financial Conduct Authority (FCA) published findings of its review into the embedding of the Senior Managers and Certification Regimes (SM&CR) in the banking sector.

The SM&CR was introduced for deposit-taking firms and dual-regulated investment firms in March 2016. The FCA’s review was based on interviews with 45 individuals across the banking sector, including trade associations, the Banking Standards Board, the FCA itself and the Prudential Regulation Authority.

The interviews established that firms were often unable to explain what a conduct breach looked like in the context of their business. The FCA commented on this by reminding firms that the “conduct rules are a critical foundation for firms’ culture and the conduct of individuals” and firms must “take all reasonable steps” to provide suitable training to relevant persons and to explain how the rules apply to them. In response to findings that senior managers expressed confusion on understanding the meaning of ‘reasonable steps’, the FCA said that it was “not possible to provide an exhaustive list that would cover every situation“, but instead referred to guidance in the Decision Procedure and Penalties manual, and stating that:

“Appropriate controls and processes are an important part of this but we also look to senior managers to think more broadly and to create an environment where the risk of misconduct is minimised, for example through nurturing healthy cultures.”

The FCA’s review found that an unintended consequence of the SM&CR during the early days of the regime was a culture of fear, however firms said that seeing regulators work collaboratively with them has helped to dissipate such concern. The FCA stated that the industry needs to improve the quality and timeliness of regulatory references, as well as how firms record breaches of the conduct rules. It noted that “some firms seem to have been less successful in embedding the regime below the senior manager level“. The FCA concluded that it is not clear to what extent the regime has been linked to culture.

Following the review, the FCA announced plans to increase its supervisory focus on the conduct rules and to continue to build on the links between the SM&CR and firm culture. The SM&CR will commence for solo-regulated firms in December 2019 and they must have trained all conduct rules staff on the conduct rules and issued the first certificates for certification staff by December 2020.