FCA: UK banks will be required to assess staff 'fitness and propriety' annually

The regulator intends to introduce the requirement as part of a new 'certification regime', which is due to be introduced next year alongside plans to make senior bankers personally responsible for failures on their watch. From 7 March 2016 the existing 'approved persons' regime will be replaced by a narrower Senior Managers Regime (SMR) applicable to the most senior bank staff. Senior managers will also be responsible for the fitness and propriety of less senior individuals subject to the new certification regime.

The plans are included in 'near-final' rules published by the FCA, along with a further consultation on the circumstances in which a 'presumption of responsibility' would apply to senior managers once the new regime is in force. The FCA is also conducting a further consultation exercise on extending a version of the new rules to senior managers of UK branches of foreign branches in conjunction with the Prudential Regulation Authority (PRA).

"How a firm conducts its business and treats its customers must be at the heart of how it operates and this has to start at the top," said Martin Wheatley, the FCA's chief executive. "[These] policy measures are an important step in ensuring that regulators have the tools at their disposal to hold individuals to account, and they build on the cultural change we are beginning to see in the boardrooms of firms across the country."

The creation of the new two-tier senior managers' and certification regime (SM&CR) follows the 2013 recommendations of the Parliamentary Commission on Banking Standards and is designed to improve individual responsibility and accountability in the banking sector. The 'senior managers' part of the new regime will give named senior individuals in banks responsibility for certain areas of the business, while the 'certification regime' will require firms to assess the fitness and propriety of staff in certain roles. New conduct rules will also apply to all staff within relevant firms except those carrying out "purely ancillary functions".

The PRA and FCA first consulted on their proposed new rules in July 2014 and, although they have not yet been finalised, have published their "near final" rules in order to give firms as much time as possible to prepare for the changes. The latest version introduces annual re-certification requirements for those staff subject to the certification regime, reflecting concerns raised about "the loss of pre-approval of certain individuals currently caught under the Approved Persons Regime" and ensuring that firms "take full responsibility themselves" for the fitness and propriety of certified staff.

The FCA has also produced more detailed guidance on the 'presumption of responsibility', under which the senior manager with responsibility for a particular area of an authorised firm in which misconduct occurs will be guilty of misconduct unless they can show that they took reasonable steps to avoid the misconduct occurring. The draft guidance, which is open for consultation until 16 June 2015, sets out the circumstances in which the FCA would seek to apply this presumption and steps that senior managers should take in order to rebut it.

Both regulators are also conducting a joint consultation on how best to extend the accountability rules to senior staff at UK branches of foreign banks, as announced by the Treasury in March. The proposals in the consultation, which closes on 25 May 2016, would allow non-EEA banks and investment firms that have UK branches to be classed as 'relevant authorised persons' (RAP) under the new regime. RAPs will be required to appoint a 'head of overseas branch', approved by the PRA, to whom a tailored version of the senior managers' regime would apply. Any dedicated CFO, CRO or head of internal audit at a RAP will also become subject to the regime.

The FCA and PRA intend to publish final rules, including transitional arrangements, later this year. Firms will have until 8 February 2016 to pass the names of the senior staff they intend to appoint as senior managers under the new regime and their areas of responsibility to the regulators, as well as to submit the names of those staff they wish to have 'grandfathered' into the certification regime. The FCA intends to publish the names of senior managers in its register from 7 March 2016, and the first certificates will have to be issued to individuals under the certification regime by 7 March 2017.