How New Financial Services Regulation Affects You

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Regulation Ready

In 2013, the Parliamentary Commission for Banking Standards set out plans to improve professional standards and culture in the UK financial industry, promote transparency and increase communication.

Following detailed consultation, these rules come into force in March, falling under three categories:

  1. Senior Managers Regime
  2. Certification Regime
  3. Conduct Rules

According to the August 2015 FCA media release announcing the changes, the Senior Managers Regime aims to ensure that people classified as senior managers are “accountable for any misconduct that falls within their areas of responsibilities”. The new Certification Regime and Conduct Rules “hold individuals working at all levels in banking to appropriate standards of conduct”.

  1. Senior Managers Regime (SMR) 

This affects individuals at the very top of financial service firms who hold key roles and responsibilities. Statements of Responsibilities will need to be produced for each of these senior managers, alongside the overall responsibility matrix.

The roles within the SMR include Chief Executive and Head of Internal Audit, as well as responsibilities such as compliance oversight, money laundering reporting and heads of key business areas. The SMR also covers some non-executive directors, including the chairs of the risk and remuneration committees.

As they are now, before starting in one of these roles, each leader will need to be approved by the regulators. In addition, firms will be legally required to assess the leader’s “fitness and propriety” before applying for approval, and then every following year. For the transition into the new regime in March it is possible to “grandfather” in people who are already performing these roles.

  1. Certification Regime (CR)

This affects staff that can cause “significant harm” and includes “material risk takers”, covering roles such as proprietary traders, staff with significant management responsibilities, functions requiring specific qualifications and people who manage certified employees.

They will also need to be assessed to see if they are fit and proper to perform their duties at the hiring stage and then every year that follows.

Instead of being approved by the regulators, the banks must approve and maintain the list of certified employees themselves.

  1. Conduct Rules

By March 7 2016, everyone covered by the SMR and CR will need to abide by the Conduct Rules – a standard for expected behaviour. Firms then have a year to prepare for the Conduct Rules to apply to all other staff (except a very small number of staff who are performing ancillary roles).

 

Individual conduct rules

Rule 1: You must act with integrity.

Rule 2: You must act with due skill, care and diligence.

Rule 3: You must be open and cooperative with the FCA, the PRA and other regulators.

Rule 4: You must pay due regard to the interests of customers and treat them fairly.

Rule 5: You must observe proper standards of market conduct.

Senior manager conduct rules

Rule 1: You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.

Rule 2: You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system.

Rule 3: 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.

Rule 4: You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.

Download the full whitepaper to see how you can get prepared for the new regulations.

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The HireRight Blog is provided for informational purposes only and should not be construed as legal advice. Any statutes or laws cited in this article should be read in their entirety. If you or your customers have questions concerning compliance and obligations under United States or International laws or regulations, we suggest that you address these directly with your legal department or outside counsel.

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