Emily Benson, head of financial services regulation at TLT, co-presented a seminar for the British Banking Association with Julie Pardy, partner at FSTP, on the implications of the Senior Managers Regime for foreign banks.

1. Senior Managers Regime - The implications for
Foreign Banks
22nd September 2015
Julie Pardy
Emily Benson

2. 2
1. On a scale of 1 to 5 (1 no progress made - 5
being ‘we are on track’) how much progress
have you made towards meeting your SMR and
CR requirements?
A 1
B 2
C 3
D 4
E 5
Senior Managers Regime - The implications for Foreign Banks

3. 3
2. On a scale of 1 to 5 (1 no confidence - 5 very
confident) how confident do you feel that you
have the systems, processes and training in
place to meet SMR and CR requirements?
A 1
B 2
C 3
D 4
E 5
Senior Managers Regime - The implications for Foreign Banks

4. 4
3. On a scale of 1 to 5 (1 no awareness - 5 fully
aware) are you of the specific requirements for
Foreign Banks to meet the SMR and CR
requirements?
A 1
B 2
C 3
D 4
E 5
Senior Managers Regime - The implications for Foreign Banks

5. 5
Agenda:
I. Introduction to the Webinar
II. Background to the history of SMR and BBA involvement
re Foreign Banks
I. Common areas of mis-understanding
II. Non EEA Branches & EEA Branches
III. Senior Managers Regime
IV. Compliance
V. Certification Regime
VI. Conduct Rules
VII. Fitness and Propriety Requirements
VIII. Questions and Answers
IX. Close
Senior Managers Regime - The implications for Foreign Banks

6. 6
• Overview
• The Scope – non EEA and EEA branches
• The Executive Director
• Other Local Responsibility
• Compliance Oversight
• Prescribed Responsibilities & Responsibility Mapping
• Presumption of Responsibility
The Senior Managers Regime

7. 7
• Banking Reforms
• Banks, Insurers, PRA designated investment firms
• Banking Act
• Effective 07 March 2016
• Senior managers – pre-approval by FCA
• Statement of responsibility
Overview

8. 8
Senior Individuals who hold key roles or have local
responsibility for key areas requiring regulatory pre-approval.
The Senior Managers Regime

9. 9
• EEA Branch & Non EEA Branch
• The Compliance Oversight function
• Overseas Branch Senior Management Function (OBSM)
• EEA Branch Senior Manager Function (EBSM)
• Significant Harm Definition
• Material Risk Definition
Common areas of misunderstanding

10. 10
• An EEA firm undertaking deposit taking via a branch in the
UK via an establishment passport
• Where an EEA firm has permission to accept deposits in
the UK via a services passport only and is NOT
undertaking any activities in relation to a branch in the UK
the regime does NOT apply
• If an EEA firm has both a services and establishment
passport they are subject to the SMR and wider
accountability regime
EEA Branch Definition (subject to the SMR and wider accountability regime)

11. 11
Branches of Non –UK firms outside of the EEA that have
permission to accept deposits or deal in investments as
principle in the UK
Non- EEA Branch Definition

12. 12
OBSM
Other
Local
Responsibility
Executive
Director
SMF3

13. 13
EEA Branch Senior Manager Function(EBSM) -
EEA Branches
• Responsible for a significant business unit i.e. accepting
deposits
• Member of a committee that takes decisions relating to a
significant business unit
• Not limited to the most senior individual responsible for an area
• No FCA governing functions apply to EEA branches
• Branch manager does not need pre-approval unless they are
also have significant responsibility for a significant business
Unit
• Individuals currently performing CF29 do not necessarily
grandfather over to the EBSM
• Definition of EBSM expands to include branches with top up
permission (CASS)

14. 14
• A tailored list of 12 prescribed responsibilities for all Non-
EEA branches ( no differentiation between smaller and
larger firms)
• Must be allocated to an approved person
• Chief Risk Function
• Compliance Oversight
• Local Responsibility
• Apply in specified circumstances
Prescribed Responsibilities

15. 15
FCA
EEA
• No gold plating
• Senior manager
• MLRO
Non- EEA branches
• Executive director
• Other local responsibility
• Compliance oversight
• MLRO
PRA
• CFO
• CRO
• Head of internal audit
• Group entity senior
management function
• Head of overseas branch
Scope

16. 16
Responsibility Mapping
Consider the
activities . Bus
areas or
functions & the
relevant
prescribed
responsibilities
Identify
individuals that
hold SMF’s 2 -
19
Allocate the
relevant
prescribed
responsibilities
ID individuals
who have local
responsibility
for any other
activities,
functions or
business areas
Record the
allocation of
responsibilities

17. 17
• Is my organisation on track to hit key SMR deadlines?
• If not, what is the contingency plan?
• Is my organisation clear on who is to hold a SMF in the
UK branch
• If not, what plans are in place to identify these individuals?
• Is there clarity within my organisation about allocation of
responsibilities
• If not, how do you plan to achieve that clarity?
Questions for you to consider

18. 18
• Overview
• Territorial scope
The Certification Regime

19. 19
The regime will apply to individuals in UK relevant firms
and non-EEA branches based in the UK or dealing with a
client in the UK, performing a role relating to a firm’s
regulated activities that could pose risk of significant harm
to the firm or its customers.
Applies to those involved in aspects of the RAP's affairs
relating to that (regulated) activity and those aspects
involve, or might involve a risk of significant harm to the
RAP or to anyone who is using (or is or may be
contemplating using) the RAP's services.
Guidance on significant harm function in COCON 5.2R
Territorial Scope of The Certification Regime

20. 20
The new Certification Regime – Key implications
The FCA will no longer
pre-approve (CF30’s)
The new certification
process becomes the
responsibility of the firm
A firm must certify their
people annually
Fitness and Propriety
must be assessed
annually
A Senior Manager within
the firm will have to
assume responsibility for
the internal assessment
and certification process

21. 21
• Have we identified the individual that will have accountability for
signing off the Certification Regime within our organisation?
• If not, how do we plan to achieve this?
• What areas of the business will be impacted by this change and what
will they need to do differently to accommodate this?
• What types and size of populations do you have that will come into an
approvals process of this nature for the first time?
• What impact will this have on employee terms and conditions?
• What progress have you made in identifying changes required?
• What changes will you need to make to your recruitment processes to
accommodate the change of requirements that the Certification
Regime will bring?
Questions for you to consider

22. 22
• Overview?
• Scope?
• What implications are there for
training?
The Conduct Rules

23. 23
The new Conduct Rules
Current Statement of
Principles to be replaced
by a set of Conduct Rules
with far wider application
PRA/FCA both propose
that the Conduct Rules
should apply to all Senior
Managers and their
respective populations in
the Certification Regime
In addition, the FCA
proposes to apply the
Conduct Rules to all other
employees of relevant
firms
EEA Branches – only applies to staff in
relation to matters within the UK’s scope of
responsibilities as the host regulator

24. 24
• All staff that are subject to the rules must be
trained
• Staff should be trained with examples that are
role relevant
Training required and challenges for firms?

25. 25
• How many people within your organisation will come
under the new Conduct Rules?
• What plans do you need to make to deal with the training
requirements that SMR brings in this area?
• SMR introduces a requirement that staff are trained on
Conduct Rules relevant to their job role - What does this
mean to your organisation?
• How many variations on a training theme will you need to
create in order to meet this requirement?
• How do you plan to provide “examples of good/poor
conduct” in respect of the new Conduct Rules that are role
relevant?
Questions for you to consider

26. 26
• To whom does this apply?
• What are the requirements?
• Implications of failure?
• Presumption of Responsibility for individuals
in-coming branches
Fit and Proper Requirements

27. 27
Those Affected
• Applicants for Senior
Management Functions
• Holders of Senior
Management Functions
• Individuals falling within
the Certification
Regime

28. 28
• Annual Assessment
• DBS check where possible for senior
management
• Reasonable steps to acquire relevant information
• Firms will need to consider whether the individual
is fit and proper
What F & P requirements does SMR bring?

29. 29
• Regulator advised if an SMR fails the F & P Test
• Annual internal certification not renewed
• HR implications for the firm
• Employment implications for the
individual
Implications of failing the “Fit and Proper” Test

30. 30
• What systems capability will I need in order to manage the
expanded F & P requirements?
• How many additional staff within my organisation are impacted
by this change?
• What legal/ HR advice do we need with regards to employment
law and any changes in contracts of employment?
• How will we make a judgment call if all required information is
not available
• What costs will be involved in additional referencing and
background checks for staff affected?
• What will our annual F & P check look like within our business
and what data will need to feed into it to be able to complete
the check?
• What additional resources might be required in order to
manage these additional requirements?
Questions for you to consider

31. 31
• FCA CP15/10/PRA CP9/15 Strengthening accountability
in banking : UK Branches of non-EEA banks
• PRA CP20/15 Strengthening accountability in banking :UK
branches of non – EEA banks
• CP15/22 Strengthening accountability in banking: Final
rules (including feedback on CP14/31 and CP15/5) and
consultation on extending the Certification Regime to
wholesale market activities
Relevant Consultation Papers and Feedback Papers

32. 32
• Summary and Close
• Next Steps
• SMR Workshops –
• E Learning – Autumn 2015
• BBA Training/Consulting Support –
• Questions & request for support to
philip.allen@bba.org.uk

33. 33
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BBA 2015
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Senior Managers Regime - The implications for Foreign Banks