The document provides an overview and history of regulatory changes aimed at holding individuals in the financial sector more accountable. It summarizes the key elements of the new Senior Managers and Certification Regime including prescribed responsibilities, a responsibility map, conduct rules, and a reverse burden of proof. It notes challenges with the new regime and predictions that some elements may prove unworkable. It advises firms and senior managers on steps they should take to prepare for and adapt to the new accountability standards.

1. Holding management to account:
Where is it all heading?
Briefing
Thursday 10th September 2015
Ben Blackett-Ord, Jo Ann McNulty and Prem Griffith

2. 2
Agenda
• Brief history
• Recap on Approved Persons Regime
• Outline of the Senior Managers & Certification Regime
• Discrepancies, anomalies and challenges
• Predictions

3. 3
A little history
• Drivers for change
• “Twin peaks” debate
• Creation of the FSA (“Super SIB”)

4. 4
Holding individuals to account
• Defining controlled functions
• Senior Management:
– Directors, NEDs, Apportionment & oversight
• Others:
– Customer facing (including traders)
– Oversight of customer property

5. 5
A shift in focus…
Banking
crisis
“Probity” “Competence”
Turner and
Walker reviews

6. 6
Failing to hold individuals to account
“…fining of individuals more
of a deterrent”
Martin Wheatley
“…FCA clearly committed to
achieving a credible deterrent
and using enforcement to
demonstrate societal
disapproval”
Tracey McDermott

7. 7
Parliamentary Commission on Banking Standards
“Too many bankers have operated with…
• insufficient or meaningless personal responsibility
• illusion of regulatory controls
• claiming ignorance or hiding behind collective decision-making
• little realistic prospect of financial penalties or sanctions
• individual incentives not consistent with high standards.”

8. 8
PCBS Recommendations (June 2013)
Recommendation Key points
New regime for individuals
• Senior persons regime
• Individual statements of responsibilities
• Responsibilities map
• Code of practice (conduct rules)
Incentives for better behaviour
• Incentives / disincentives to reflect long-
term risk and reward
New enforcement approach
• Reverse burden of proof
• Potential for criminal prosecution

9. 9
Senior Persons Regime
Senior
Management
Functions
Certification Regime
Individuals
All other staff
FIRM PERSONNELFIT
PRA/FCA
Assessment
Firm
Assessment
ConductRules

10. 10
Tier one – Senior Management Regime
• Set of Senior Management Functions (SMFs)
• List of prescribed responsibilities
• Responsibility for all areas of activity
• Individual statements of responsibility
• Firm to create Responsibility Map
• Presumption of culpability
• Potential criminal offence (in extremis)
Governance framework
Personal accountability

11. 11
Prescribed responsibilities/responsibilities map
• Defined ‘prescribed responsibilities’:
• Areas of overall responsibility
• Individual statement of responsibilities
• Responsibility map
Responsibility for compliance with the requirements of the regulatory
system about the management responsibilities map
Responsibility for overseeing the adoption of the firm’s culture in the day-
to-day management of the firm
Responsibility for the development and maintenance of the firm’s
business model by the governing body

12. 12
Reverse burden of proof and criminal offence
Reverse burden of proof
• SMF guilty of misconduct…
• …unless can demonstrate that took reasonable steps
Potential criminal offence
• SMF party to decision
• Decision caused firm to fail
• SMF conduct far below reasonably expected

13. 13
Tier two – Certification Regime
• Individuals who pose risk of
significant harm to the firm or its
customers:
• The firm is responsible for fitness
and propriety
Senior
Management
Functions
Certification Regime
Individuals
All other staff

14. 14
Role of accredited bodies
Certificate
of
Professional
Standing

15. 15
Bodies recognised by the FCA

16. 16
Conduct rules – “Same, same but different”
• High level rules
• Reflect core standards expected of staff
• Similar to APER, plus:
• Apply to:
– SMFs
– Certified individuals
– Almost everyone else
• Actual or suspected breaches reported to the regulator
You must pay due regards to the interests of the customers and treat
them fairly
You must take reasonable steps to ensure that any delegation of your
responsibilities is to an appropriate person and that you oversee the
discharge of the delegated responsibility effectively

17. 17
Branches of foreign banks
• Rules not yet finalised
• Reduced set of applicable SMFs
• Reduced set of prescribed responsibilities
• Certification regime applies
• May catch overseas individuals
• Annual SYSC attestation no longer required

18. 18
Challenges
• Very different regime for relevant firms
• Agreeing and documenting responsibilities
• Responsibility map
• No register for certified individuals
• Uncertainty over FCA/PRA approach to supervision
• Will it work?

19. 19
Short term
• Culture change – covering your back
• Increased use of attestations
• More committees
• Conflicts between individuals and firms…
• …Employment law / tribunals

20. 20
Medium term
• Prescribed responsibilities will change
• Some elements will prove to be unworkable
• Regime will extend to other sectors
• Regulatory arbitrage
• PRA vs FCA – tensions may rise
• Role of accredited bodies will increase

21. 21
What you should be doing
Relevant firms:
• Decide where responsibility sits
• Consider resources required
• Start with responsibility map and work through it
• Use training and education
• Consider use of accredited bodies certification
process
• …Time is short!

22. 22
What you should be doing
Senior Managers:
• Understand the regime and its drivers
• Define your responsibilities in advance
• Where are the red lines?
• Avoid being defensive

23. 23
What you should be doing
Other firms:
• Be aware this is probably coming your way
• Review your approach to “Apportionment and
oversight”
• Document your own responsibilities map.

24. 24
Any questions?