EMBEDDING SMR IS YOUR ACCOUNTABILITY FRAMEWORK EFFECTIVE?

Transcription

1 EMBEDDING SMR IS YOUR ACCOUNTABILITY FRAMEWORK EFFECTIVE?

2 BDO IS THE WORLD S FIFTH LARGEST ACCOUNTING NETWORK, OFFERING A CONSISTENT GLOBAL SERVICE THROUGH STRONG, LOCAL RELATIONSHIPS. OUR MARKET POSITION MEANS WE ARE OFTEN CONFLICT FREE, OFFERING INDEPENDENT AND ROBUST OPINIONS THAT STAND UP TO REGULATORY SCRUTINY. CONTENTS SMR LESSONS LEARNT 3 AN ACCOUNTABILITY FRAMEWORK 5 HOW CAN WE HELP? 6 OUR EXPERTS 7

3 BDO IS THE WORLD S FIFTH LARGEST ACCOUNTING NETWORK, OFFERING A CONSISTENT GLOBAL SERVICE THROUGH STRONG, LOCAL RELATIONSHIPS. OUR MARKET POSITION MEANS WE ARE OFTEN CONFLICT FREE, OFFERING INDEPENDENT AND ROBUST OPINIONS THAT STAND UP TO REGULATORY SCRUTINY.

4 3 BDO LLP IS YOUR ACCOUNTABILITY FRAMEWORK EFFECTIVE? SMR LESSONS LEARNT In the UK, BDO plays an active role in representing and advising banks and other regulated entities. Our specialist Governance and Risk Management Team often acts as a Skilled Person (under the Financial Services Market Act 2000) on corporate governance engagements for banks in the UK. Increasingly, we are being engaged by UK banks, subsidiaries and branches of foreign banks as the PRA and FCA continue to scrutinise these firms through supervisory visits and Skilled Person appointments. BACKGROUND In late September 2016, the PRA and FCA issued a raft of further policy statements, consultation papers, feedback statements and discussion papers. The consultation papers proposed amendments to the regime, principally: The introduction of a new Senior Management Function, SMF 23, and a prescribed responsibility, both of which are focused on systems resilience and continuity Reversal on the Regulator s approach to duty of responsibility, now placing the onus on the Regulator to demonstrate that individual did not discharge their responsibility appropriately Application of conduct rules to Notified Non-Executive Directors Whistleblowing requirements for branches. The policy statements focused on the Regulator s final rules with respect to regulatory references and the requirements to be included in SYSC 22. FEEDBACK ON GRANDFATHERING AND SMR IMPLEMENTATION Throughout Q and Q1 2016, all dual regulated firms went through the grandfathering process and the implementation of the SMR with varying degrees of success. The Regulator, in September 2016, published feedback on the SMR documents it reviewed for a cross-section of dual regulated firms. The findings in a number of instances are similar to our observations based on Skilled Person engagements and SMR assurance reviews we have conducted throughout We have summarised these overleaf.

5 IS YOUR ACCOUNTABILITY FRAMEWORK EFFECTIVE? BDO LLP 4 SMR LESSONS LEARNT FEEDBACK ON GRANDFATHERING AND SMR IMPLEMENTATION Within FS16/6, 16/7, 16/8 and 16/9 the Regulator provided detailed feedback on a cross-section of dual regulated firms. The key points included: ALLOCATION OF PRESCRIBED RESPONSIBILITIES AND BUSINESS FUNCTIONS Instances noted where prescribed responsibilities have not been allocated to the most senior individual Instances noted where responsibilities for business functions have not been allocated to the most senior individual. SHARING OF PRESCRIBED RESPONSIBILITIES AND SMFS Instances where firms have not provided sufficient detail or clarity with respect to the a sharing of roles and prescribed responsibilities Instances whereby the firm has not stated the reasons as to why roles/responsibilities have been shared. STATEMENT OF RESPONSIBILITIES (SOR) Instances where SoRs contain unnecessary information, including how individuals will execute their responsibilities or SMF. MANAGEMENT RESPONSIBILITIES MAP (MRM) Instances where firms are not fully addressing the requirements with respect to SYSC 4 and the requirements for the MRM, with respect to: Limited information on the bank s governance framework Limited information on how the UK bank s governance arrangement interlink with the Group s governance arrangements Lack of detail with respect to reporting lines and committee memberships.

6 5 BDO LLP IS YOUR ACCOUNTABILITY FRAMEWORK EFFECTIVE? AN ACCOUNTABILITY FRAMEWORK WHAT DOES GOOD LOOK LIKE? This is the subjective question faced by all banks. More specifically, what does good look like for a bank like ours and with our complexity? There is no one-size-fits-all solution and proportionality is key. Typically a bank s Accountability Framework will consist of the following areas: CORPORATE GOVERNANCE STRUCTURE AND SENIOR MANAGEMENT OVERSIGHT ACCOUNTABILITY POLICY INCORPORATING (SENIOR MANAGERS REGIME, CERTIFICATION REGIME AND COCON) KEY SUPPORTING DOCUMENTS RESPONSIBILITIES MAP STATEMENTS OF RESPONSIBILITIES COMPLIANCE MANUAL HR PROCEDURES REMUNERATION POLICY STAFF HANDBOOK STAFF AND NON- EXECUTIVE DIRECTOR JOB DESCRIPTIONS TRAINING AND COMPETENCE SCHEME KEY PERFORMANCE INDICATORS WHISTLE BLOWING POLICY

7 IS YOUR ACCOUNTABILITY FRAMEWORK EFFECTIVE? BDO LLP 6 HOW CAN WE HELP? We work with a diverse range of banks to help senior management and non-executive directors understand the regulatory requirements applicable to them and provide assurance over the adequacy of systems and controls OUR APPROACH We tailor our approach to each firm. Typically, our engagement will incorporate an initial accountability framework health check ( Health Check ), the output of which will provide assurance to senior management and the Board as to the effectiveness of the firm s framework. In addition all outputs contain detailed, but proportionate recommendations, to address noted areas for enhancement. Issuance of a factually accurate report with robust findings, conclusions and recommendations that stand up to Board and Regulator scrutiny. 5 A clear roadmap and plan for a fit-forpurpose accountability framework Assessment of effectiveness of framework through detailed review of the bank s key implementation documents including; SMF approach to demonstrating duty of responsibility; management responsibilities map(s), SORs, handover documents 3 4 A PARTNER LED TEAM OF EXPERIENCED CORPORATE GOVERNANCE EXPERTS A CLEAR UNDERSTANDING OF YOUR FIRM, BUSINESS AND RISKS ON-GOING, OPEN AND CLEAR COMMUNICATION 1 Engagement scoping and get to know you meetings. Assessment of framework design through benchmarking of policies and procedures against regulatory requirements, peers and identification of areas to be enhanced. 2 Assessment of the firm s governance and oversight of its accountability framework: Attendance at committee meetings, Review of meeting minutes, packs and terms of reference One to one interviews. Following the issuance of our Health Check report, we continue to work with our clients to help them implement the recommendations to a greater or lesser extent. Central to ensuring we deliver exceptional client service is our commitment to continuously act as trusted advisers.

8 7 BDO LLP IS YOUR ACCOUNTABILITY FRAMEWORK EFFECTIVE? OUR EXPERTS LEIGH TREACY Head of Financial Services Advisory +44 (0) Leigh is an experienced banking partner in the financial services team at BDO and has over 19 years experience in providing assurance and advisory services to banks, foreign branches and subsidiaries, lenders, consumer credit firms, peer to peer lenders and other financial institutions. She leads the Banking team and Financial Services Advisory practice at BDO. She is a Chartered Accountant and Senior Statutory Auditor and is a member of the Risk and Regulation Committee of the ICAEW s Financial Services Faculty. Recent relevant experience includes: Leading a number of assignments advising on the implementation of the Senior Manager and Certification Regimes for a number of foreign branches and subsidiaries operating in the UK, as well as advising her banking clients on the implications and key elements of the regimes. She has also spoken at a number of industry seminars on the subject Acting as Skilled Person on a number of S166 reviews dealing with governance and accountability in the banking sector and has provided advice regarding assessing individual s fitness and propriety for SMF roles and as part of the approved person regime. Leading a number of S166 reviews dealing with governance, risk and culture, as well regulator driven reviews of board effectiveness and culture in the UK and Europe. FIONA RAISTRICK Partner, Financial Crime and Risk Management +44 (0) fiona.j.raistrick@bdo.co.uk Fiona joined BDO LLP as a Financial Services Advisory Partner in January Fiona was previously a manager at the Financial Conduct Authority. Whilst at the FCA she led the FCA s central Skilled Person team, taking responsibility for the oversight of all Skilled Person Reviews and the FSA/FCA s interactions with professional services firms. This included designing and implementing the Skilled Person Panel and supporting supervisors on over 150 Skilled Person Reports addressing a wide variety of technical matters. Recently Fiona conducted a Skilled Person Report on a UK subsidiary of a large US Financial Services group, assessing the appropriateness of UK firm s governance structures, including the effectiveness of the board, escalation and reporting. This covered assessing the arrangements and individuals against SYSC, APER and FIT. KIAN CAULWELL Senior Manager, Financial Services Advisory +44 (0) kian.caulwell@bdo.co.uk Kian is an experienced Senior Manager in BDO s Financial Services Advisory Team, He has over ten years of experience in working with regulated entities across UK banks and foreign banks. He specialises in the areas of corporate governance and risk management, where he assists his clients in understanding their regulatory requirements and developing proportionate solutions. Most recently Kian has advised a significant number of UK banks and foreign banks on their responsibilities with respect to the SMR, CR and code of conduct rules. Increasingly he has been performing assurance reviews of bank s accountability frameworks in assessing the adequacy of their design and implementation.

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10 FOR MORE INFORMATION: LEIGH TREACY +44 (0) KIAN CAULWELL +44 (0) This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO LLP, a UK limited liability partnership registered in England and Wales under number OC305127, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. A list of members' names is open to inspection at our registered office, 55 Baker Street, London W1U 7EU. BDO LLP is authorised and regulated by the Financial Conduct Authority to conduct investment business. BDO is the brand name of the BDO network and for each of the BDO Member Firms. BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is licensed to operate within the international BDO network of independent member firms. November 2016 BDO LLP. All rights reserved. HB008986