Strengthening accountability in banking

Transcription

1 Strengthening accountability in banking A summary of the final rules Summer 2015 On 7 July 2015, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) published statements and policy on the Senior Managers and Certification Regimes. These confirm the direction of prior consultations and provide initial feedback and final rules for Non-Executive Directors (NEDs). There are no material changes from what has gone before. However, there are some relevant revisions and two key areas where feedback and final rules remain outstanding presumption of responsibility and regulatory referencing. In addition, the FCA is also consulting on an extension of the Certification Regime for individuals involved in wholesale market activities. These latest regulatory statements: Confirm the position of NEDs captured by the changes Clarify the regulatory expectations on sharing and allocating responsibilities Tighten the population of material risk takers captured through the Certification Regime Set out the timelines for notifying and reporting on breaches of the Conduct Rules In the following update, we provide a review of the updates in five key areas: Senior Managers Regime Certification Regime Conduct Rules Extension of the Certification Regime to individuals involved in wholesale market activities Key activities required as well as those still to come While the final rules will not change the course of most ongoing programmes, they reinforce the extent of preparation required and the limited time remaining to achieve compliance by 7 March 2016.

2 Senior Managers Regime NEDs The final rules confirm the reduced number of Senior Management Function (SMF) NEDs and the limitation of prescribed responsibility to their role as chair of a relevant committee. However, all their chairman roles should be included in their statement of responsibility. Non-SMF NEDs are now referred to as notified NEDs for whom the Certification Regime and Conduct Rules do not apply. No NEDs should be identified as Senior Manager Function 18 Other responsibility (SMF18). The regulators note the concern over twotier board, but consider that overarching statutory responsibilities and the need for collective decision-making should override this. Indeed, outside acting as Chair, all NEDs should have the same level of interest in the allocation of responsibilities and the delivery of reasonable steps within firms. Revised SMF roles The SMF18 role has been redefined as the other overall responsibility function to enable the capture of Senior Managers for areas not caught under other Senior Manager roles such as IT, HR and Senior Managers responsible for growing business lines that do not meet the quantitative thresholds. The definition of the CASS-prescribed responsibility has also been revised, suggesting an extension of the associated responsibility. Management responsibility map There is a new requirement for the management responsibility map to include a checklist confirming all prescribed senior management responsibilities have been allocated, or reasons why they have not been allocated. Sharing and splitting responsibilities The PRA maintains its clear view that responsibilities can be shared but not split. While the FCA has aligned itself more towards this view, it still provides for the splitting of responsibilities in exceptional circumstances. Examples of possible sharing are provided, and emphasis is placed on the need to demonstrate that there are no gaps in responsibility. This needs to be reinforced through associated statements of responsibility which, in the case of responsibilities shared across co-heads of business, would be expected to be the same, and subject to a joint action unless certain specific differences exist, e.g., regional coverage. Statements of Responsibility It has been confirmed that Statements of Responsibility should be limited to 300 words. In addition, Statements of Responsibility are expected to incorporate other responsibilities for which the Senior Manager is responsible in his or her regulatory role, for example, high-profile projects or initiatives outside a Senior Manager s normal course of business. 2 Strengthening accountability in banking

3 Certification Regime Material risk-takers While these continue to be a significant harm function, the FCA has aligned its territorial application with that of the PRA such that if the firm is dual-regulated and subject to the remuneration code, material risk-takers based overseas will be required to be certified. This may capture individuals based overseas who engage in remote booking into the UK when the client is not a UK client. Extension of the Certification Regime to individuals involved in wholesale market activities Conduct rules Breach notification The FCA has reduced its breach notification requirements. Rather than a quarterly submission of identified or suspected breaches, an annual submission is now required. This will be based on breach information at 1 October each year, for submission by 31 October that year. The first submission is due 31 October 2016, with those subject to the Conduct Rules included in the submission for The PRA continue to require notification within seven days of identification for Senior Managers and PRA-certified material risk-takers. There is no further guidance on materiality thresholds. However, breach descriptions must be limited to 300 words. The FCA proposes to introduce two new categories of significant harm functions as part of the Certification Regime, which will apply to relevant individuals based in the UK, or dealing with UK clients, or the managers of those individuals. Client dealing this will effectively capture any of the existing CF30 advisor population not previously incorporated in the Certification Regime and extend the population to cover employees effecting transactions with clients; covering retail, professional and counterparties in relation to regulated products. Algorithmic trading this will cover those responsible for the deployment, amendment or monitoring of a trading algorithm. Strengthening accountability in banking 3

4 Key activities required January 2016 Submit new Senior Manager applications to the regulators Submit firm s management responsibility map February 2016 Submit Statements of Responsibility for all Senior Managers Submit grandfathering applications and Statements of Responsibility for all Senior Managers capable of grandfathering Identify and train all certified employees in conduct rules and Regime s fit and proper requirements March 2016 Put systems in place to identify and manage reporting of conduct breaches (actual and suspected) Put systems in place to identify and manage population movements in certified and Senior Manager population October 2016 First FCA Conduct Breach Report due March 2017 Issue fit and proper certificate to all certified employees Identify and train all staff subject to conduct rules not already captured through Senior Manager and certification populations 4 Strengthening accountability in banking

5 Still to come... Near final rules and feedback statements on application of accountability regimes to incoming branches of overseas branches expected late summer 2015 Guidance on presumption of responsibility feedback and final text expected autumn 2015 Guidance relating to enforcement matters feedback and final text expected autumn 2015 Consultation on regulatory referencing expected autumn 2015 with final rules in place for March 2016 Guidance notes relating to notifications of breach of conduct rules and related disciplinary action for certified employees expected late 2015 Guidance notes relating to Statements of Responsibility expected late 2015 Final rules on senior management responsibility for whistleblowing expected before year-end 2015 Final rules on extension of Certification Regime to wholesale activities expected to be in place for March 2016 Strengthening accountability in banking 5

6 Notes: 6 Strengthening accountability in banking

7 Notes: Strengthening accountability in banking 7

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