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Banks unready for Senior Managers Regime, says report

Many banks are falling behind in their preparations for the Senior Managers Regime that comes into force on March 7, and regulators will give little leeway, eFinancial News has reported. 22 Feb 2016

Banks have been submitting forms to the Financial Conduct Authority and the Prudential Regulation Authority with details of executives and their responsibilities. However, a third of these forms have been rejected because of "technical errors", the Association of Foreign Banks told its members in a memo seen by eFinancial News,

Smaller banks have had the most difficulties in completing the forms correctly, the memo said, according to eFinancial News. Common errors included giving the wrong regulatory designation code to a particular person, the memo said.

The Senior Managers' Regime (SMR) and Certification Regime (CR) for senior bankers 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.

The FCA and PRA are unlikely to be lenient in dealing with banks that miss the deadline, eFinancial News said, citing people familiar with the matter. A source told the news site that while there may be "some evolution" after March 7, the FCA "expects firms to be ready".

British firms have had finalised rules since mid-2015 but foreign banks received their final rules in December.

Banking reform expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com said: "While it may appear somewhat harsh for the UK regulators to give UK-based foreign banks less time than other banks to implement the regime, the regulators have made it clear that they will be unlikely to extend the deadline. Only time will tell what action, if any, the regulators take in such circumstances."

"The technicalities of the regime and completing the relevant documentation have been exacerbated in some circumstances where the regulators themselves are not wholly clear at this stage exactly what they are looking for. However, any firm illustrating a failure to understand the regime and its requirements may well attract increased scrutiny from regulators on this issue and more widely," Ruck said.

"In general, firms have benefitted from engaging in a conversation with the regulators around implementation of the new regime and with the deadline fast approaching such a relationship is increasingly vital," he said.

The FCA said this month that algorithmic and high-frequency traders will be subject to new rules intended to make it easier for regulators to hold them personally accountable for failures.

Banks, building societies and designated investment firms performing wholesale banking activities must certify senior staff performing client dealing and algorithmic trading roles and train less senior staff in new conduct rules before they come into force on 7 September, according to an FCA policy statement. The announcement effectively extends the scope of the new senior managers' and certification regimes (SM&CR) for senior bank staff, which come into force next month.