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FCA finalises Senior Managers' Regime enforcement and penalties


The Financial Conduct Authority (FCA) has finalised the guidance setting out how it will bring enforcement action against regulated banking, insurance and financial staff once new accountability rules come into force next year.

Its final Decision Procedure and Penalties Manual (DEPP) and Enforcement Guide (EG) emphasise that it will enforce the new rules in a "proportionate" way. The new regime comes into force on 7 March 2016 and includes the Senior Managers' Regime (SMR) and Certification Regime (CR) for senior bankers, and new conduct rules.

"It will come as no shock to anyone who has been following the development of the Senior Managers' Regime that the policy statement issued by the FCA on how the SMR will be enforced highlights the FCA's desire to hold individuals accountable for failings at firms," said financial regulation and enforcement expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com.

"Despite the references to transparency and clarity being motivations for the new regime, the key message is that the FCA and Prudential Regulation Authority (PRA) want to make it simpler for enforcement action to be taken against individuals, in particular those performing senior management functions," he said.

The SM&CR forms part of the UK government's programme of banking reform following the financial crisis of 2008, and was developed following the recommendations of the independent Parliamentary Commission on Banking Standards (PCBS) in July 2013. The 'senior managers' part of the new regime will give named senior individuals within firms the 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. These rules will set out basic standards of good conduct for staff. A subset of the conduct rules, which place an increased emphasis on responsible delegation, will only apply to senior managers. Individuals subject to either the SMR or the CR will be subject to the conduct rules from 7 March 2016. They will apply to all other staff at relevant firms from 7 March 2017.

According to the FCA's guidance, before bringing enforcement action against a senior manager the regulator will have regard to that person's statement of responsibilities and the firm's management responsibilities map when determining the extent of that person's responsibilities. Senior managers working in UK banks, building societies and PRA-designated investment firms, but not those in credit unions or UK branches or overseas firms, will also be subject to a new criminal offence relating to a decision that causes a financial institution to fail.

The FCA will be able to take disciplinary action against individuals whose conduct falls short of the basic standards set out in the conduct rules, according to its guidance. It will enforce these rules "proportionately", taking account of the staff members' "position and responsibilities", according to the guidance.

"When enforcing the conduct rules, we will follow our deterrence-based strategy: we will take effective and robust enforcement action across a wide range of firms and individuals, so that people believe that they will be held to account where they are at fault and subject to meaningful sanctions," it said.

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