Strengthening Accountability in Banking Senior Managers & Certification Regime Notes: These slides are based on those used for an event held on 20 July 2015 for professional advisers and have been updated with information on the regime for incoming branches of overseas banks. These slides summarise key information and should not be interpreted as Guidance. These slides have been updated to reflect the HMT announcement on 15/10/15 (stating their intention to remove the Presumption of Responsibility and the statutory requirement to report breaches of Conduct Rules) and the publication of PS15/30 for incoming branches on 16/12/15. 1
Contents • Overview of the new regime Slides 3-11 • Transitioning to the Senior Managers Regime Slides 12-31 • Certification Regime and Conduct Rules Slides 32-36 • Appendix Slides 37-44 2
Overview 3
Background (1/2) The Parliamentary Commission on Banking Standards (PCBS) recommended: • “A Senior Persons Regime... should provide far greater precision about individual responsibilities than the system that it replaces, and would serve as the foundation for… changes to enforcement powers… ” • “A Licensing Regime… as the basis for upholding individuals' standards of behaviour , centred on the application of a revised set of Banking Standards Rules to a broader group… ” The Banking Reform Act 2013 created the legislative framework. 4
Background (2/2) Through the new Accountability Regime: • Senior managers can be held accountable for misconduct that falls within their area of responsibility. • Individuals working at all levels can be held to appropriate standards of conduct. 5
Our banking accountability regime in context Final rules for the Senior Managers & Certification Regime have been published. Still to come: Accountability • Extension of Certification regime to ensure a consistent approach to wholesale activity (under consultation). • Final Handbook consequential amendments. • Final rules on Regulatory References New Remuneration rules published in June 2015, bringing Remuneration greater alignment between risk and reward. New rules to strengthen whistleblowing systems and controls in firms and to promote a culture where people can Whistleblowing speak up were published in October 2015 and take effect in September 2016. 6
The new accountability regime Applies to Banks, PRA-designated Investment Firms, Building Societies, Credit Unions and Incoming Branches of Overseas Banks* Pre-approved by Senior Significant regulators and Pre-approved Management Influence subject to fit and by regulators Functions Functions proper assessment and subject to by the firm Statements of Principle and Certified as Fit Customer Certification Subject to Code of and Proper by Dealing employees Conduct Practice the firm Functions Rules Other staff covered by Conduct All other Rules staff Ancillary staff * also known as Relevant (not in scope) Authorised Persons (RAPs) 7
Senior Managers Regime: overview (1/2) • UK RAPs: Board (excluding ‘Notified NEDs’) and other individuals who hold key roles or have overall responsibility. NEDs captured are: Chairman of the Board, Chairs of Risk, Audit, Remuneration and Nomination Committees and Senior Independent Directors only. Scope • Non-EEA Branches: Executive Directors of the branch and other individuals who hold key roles or have local responsibility. • EEA branches: Individuals with significant responsibility for significant business units of the branch and other individuals who hold key roles. 8
Senior Managers Regime: overview (2/2) • Pre-approval by regulators. • Annual assessment of fitness and propriety by the firm. • Regulatory power to approve applications with time limits or conditions. Features • Conduct Rules (including additional rules for Senior Managers). • Statements of Responsibilities. • Criminal records checks and regulatory references. • Criminal offence relating to a decision that causes a financial institution to fail. • Notified NEDs in UK RAPs (i.e. those that do not have a specified role on the board) will not be subject to the SMR, including pre-approval or the criminal offence etc. • The criminal offence also does not apply to credit unions or incoming branches. • Note: HMT is proposing to introduce a ‘duty of responsibility’ to replace the ‘Presumption of Responsibility’. 9
Interaction between SM&CR and Remuneration Senior Managers Regim e: Rem uneration • Senior managers holding a PRA SMFs – FCA only SMF will be subject to the Remuneration rules • Senior managers holding an FCA- SMFs – PRA and FCA only SMF will only be subject to I n scope the Remuneration rules if they are of the an MRT Certification Remuneration rules employees - MRTs Certification Regim e: Other Certification • Certification employees who are em ployees (FCA not MRTs will not be subject to Out of scope only) the Remuneration rules. of the Remuneration rules Other staff (covered by Conduct Rules) Ancillary Staff (not in scope) 10
Key messages for firms - now • A key purpose of the new regime is to im prove genuine accountability in firms by removing ambiguity and clarifying individual responsibilities. We do not want to see a tick-box approach taken by firms, but genuine engagement. • Firms should be working now on how to apply the new regimes to their businesses. Firms m ust subm it their grandfathering notifications and Statements of Responsibilities by 8 February 2 0 1 6 , before the new regime commences on 7 March 2016. • Firms are encouraged to submit via online form s, when these are available (forms for UK firms will be available earlier). 11
Transitioning to the Senior Managers Regime: what does this mean for firms? 12
Timeline UK RAPs Feedback Statem ent / I ncom ing UK RAPs: Final I ncom ing Branches: Branches: Final HMT confirm ed extension of regim e to foreign rules effective * Near Final rules Rules effective 7 / 7 / 1 5 published 1 3 / 8 / 1 5 1 6 / 1 2 / 1 5 branches 2015 Jan. Feb. March April May June July Aug. Sept. Nov. Dec Oct. All grandfathering Senior Managers Regim e notifications to be com m ences 7 March 2 0 1 6 subm itted by Conduct rules apply to Senior Managers and Certified Persons. 8 / 2 / 1 6 Certified Persons to be identified. Certification transition 2016 Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec. Certified Persons to be issued w ith certificates by 7 / 3 / 1 7 Conduct rules apply to all other Financial Services staff 2017 Dec Aug. Sept. Nov. Jan. Feb. March April May June July Oct. 13
Grandfathering: what does this mean for firms? (1/2) Firms should now be progressing preparations to: – identify relevant Approved Persons to grandfather to the new Senior Managers Regime – identify any new approvals required (i.e. for individuals not currently approved as Approved Persons but who will be performing a Senior Management Function at commencement) – prepare and submit a Statement of Responsibilities for each individual (per legal entity) who will become a Senior Manager 14
Grandfathering: what does this mean for firms? (2/2) Firms should now be progressing preparations to: (cont’d) – construct and submit the Firm Responsibilities Map – submit documents with Grandfathering Notification Form (Form K) – identify individuals performing Significant Harm functions (specified by regulators) who will fall within the new Certification Regime. – train Senior Managers and Certified Persons on Conduct Rules before they take effect on 7 March 2016 . 15
Mapping SIF holders to SMF functions for UK RAPs CURRENT CF PRA SMF* FCA SMF Director (CF1) Chief Finance function (SMF2) Executive Director (SMF3) Partner function (CF4) Chief Risk function (SMF4) Director of unincorporated Head of Internal Audit function (SMF5) association function (CF5) Head of Key Business Area (SMF6) Group Entity Senior Manager (SMF7) Credit Union Senior Manager (SMF8 – if CF1) NED (CF2) Group Entity Senior Manager (SMF7) Chair of Nomination Credit Union Senior Manager (SMF8) Committee (SMF13) Chairman (SMF9) Chair of Risk Committee (SMF10) Chair of Audit Committee (SMF11) Chair of Rem Committee (SMF12) Senior Independent Director (SMF14) Chief Executive (CF3) Chief Executive (SMF1) Credit Union Senior Manager (SMF8) Compliance Oversight (CF10) Compliance Oversight (SMF16) CASS Operational Oversight (CF10a) Other Overall Responsibility (SMF18) Money Laundering Reporting (CF11) Money Laundering Reporting (SMF17) Systems and controls (CF28) Chief Finance function (SMF2) Chief Risk function (SMF4) Head of Internal Audit (SMF5) Significant management (CF29) Head of Key Business Area (SMF6) Other Overall Responsibility Group Entity Senior Manager (SMF7) (SMF18) * Approval of PRA-designated SMFs will be subject to consent from the FCA 16
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