PRA and FCA Consult on New Banking Regulatory Regime

The PRA and FCA have issued a joint consultation paper on strengthening accountability in banks which outlines a new regulatory framework designed to hold individuals to account. The new regime will apply to UK banks, building societies, credit unions and PRA-designated investment firms

The proposals include:

A Senior Managers Regime (SMR) 

Those within the SMR will be subject to regulatory approval. Firms will be required to allocate a range of responsibilities (significant management functions) to these individuals and will have to vet their fitness and propriety on a regular basis. When applying for regulatory approval for these individuals, firms will have to include a statement of responsibilities setting out their areas of responsibility. Firms will also be required to prepare, maintain and update a responsibilities map, describing their management and governance arrangements. 

The SMR will focus accountability on a significantly narrower number of senior individuals in a firm than the current Approved Persons Regime (APR). It will apply to individuals performing management functions (SMFs), specified by either regulator, on behalf of a firm, whether physically based in the UK or overseas. It will cover board members, executive committee members in larger firms (i.e. the layer below board level) and other individuals such as heads of key business areas, individuals in group or parent companies exercising significant influence on the firms’ decision-making and those responsible for important business, control or conduct-focused functions.

Certification Regime

This regime will require firms to assess annually the fitness and propriety of employees in positions (known as significant-harm functions) where the decisions they make could pose a risk of significant harm to the firm or any of its customers. 

Standards of fitness and propriety are likely to remain pretty much unchanged. However, both the PRA and FCA propose to introduce new requirements about the evidence that relevant firms should collect as part of the assessment process. This regime will apply to employees of relevant firms who are not performing SMFs, but who meet criteria set by each regulator. 

Set of Conduct Rules 

The proposed new rules take the form of brief statements of high-level principles, setting out the standards of behaviour for employees and replace the current Statements of Principle and Code of Practice for Approved Persons (APER) for relevant firms. As well as applying to persons in the combined scope of the SMR and the Certification Regime, these rules will apply to most employees of relevant firms based in the UK or who deal with customers in the UK.

Comments can be made on the proposals in the consultation paper Strengthening accountability in banking: a new regulatory framework for individuals until 31 October 2014. The timetable for implementation of the changes forms part of the consultation but Policy Statements containing the respective final rules and the timetable for introduction are expected to be published at the end of 2014.