Featured Product

    FCA Reviews Implementation of SM&CR in Banking Sector

    August 05, 2019

    FCA published results of the review into embedding of the Senior Managers and Certification Regime (SM&CR) in the banking sector. The review covered a wide range of themes such as senior manager accountability, certification, regulatory references, conduct rules, impact on culture, unintended consequences of the regime, and embedding and overcoming initial implementation issues. The review found that the industry has made a concerted effort to implement the regime. Most firms are taking actions to move away from basic rules-based compliance toward embedding the regime in the organization.

    The following are the key findings of the review:

    • Senior Manager Accountability. Senior managers across all firms were clear on what accountability means in the context of their jobs and day-to-day activities. Some non-executive directors were concerned the regime expected too much from the Board. The SM&CR does not seek to redefine the roles of non-executives. FCA sees the oversight role of non-executive directors and their ability to challenge management as a key safeguard for the interests of firms’ stakeholders. FCA looks to senior managers to think more broadly and to create an environment where the risk of misconduct is minimized, for example through nurturing healthy cultures.
    • Certification. FCA states that it found that firms have implemented processes to oversee the certification population. They have taken steps to ensure their frameworks are robust with several checks and balances in place to support the competence assessment and provision of training. However, most firms could not demonstrate the effectiveness of their assessment approach, use of subjective judgment, or how they ensure consistency across the population.
    • Regulatory References. All firms were positive about the concept of regulatory references and its intention to address the potential issue of "rolling bad apples." However, the majority felt that the industry had some way to go to improve the quality and timeliness of references. Another challenge for firms is that other firms are not always consistent in recording breaches of the Conduct Rules. This depended on their size, risk appetite, and from where they recruit senior managers and certification staff.
    • Conduct Rules. Interviewees believed that staff generally understand the conduct rules. However, evidence suggests that firms have not always sufficiently tailored their conduct rules training to job roles of staff. However, there was insufficient evidence to be confident that firms have clearly mapped the conduct rules to their values. Many firms were often unable to explain what a conduct breach looked like in the context of their business.
    • Impact on Culture. Most firms said that they had embarked on culture change work before the implementation of the regime. These initiatives were prompted by a number of factors, including past conduct issues, the impact of ring-fencing, and the remuneration code. The regime is having an impact on the mindset of senior managers. However, SM&CR is primarily enabling firms to improve their controls environment, which they expect to lead to improved behaviors. It is not clear to what extent the regime has been linked to culture.
    • Unintended Consequences of Regime. For most firms, SM&CR did not lead to significant unintended consequences. There is evidence that processes and controls on approvals of new products and businesses have been tightened. Most firms mentioned the additional staff and work required to administer the regime. However, this was seen by many as part of creating a robust governance environment within their firm.
    • Overcoming initial implementation issues. Most firms continued to embed the regime, particularly below the senior manager level, with a focus on the spirit of the regime and ensuring their approach is proportionate. Generally, the larger banks, with more resources and exposure to the regulators, are more mature in their approach. Firms described the initial stages of implementation as challenging but came to see clear definition of accountability as beneficial. There is some room for further progress at the certification level and potentially more significant weaknesses in the implementation of the conduct rules for other staff.

    For this review, FCA interviewed 45 people at 15 banking sector firms as well as trade associations, the Banking Standards Board, FCA, and PRA. The key element of the review was interviews with individuals in firms who have worked with SM&CR. The SM&CR was introduced for deposit-taking firms and dual-regulated investment firms (the banking sector) in March 2016. The SM&CR is an important way to establish a culture of accountability for conduct and it aligns with the cross-sector business priority to continue to work on firm culture and governance. The findings of the review will be of interest to the banking sector and to all SM&CR firms. This includes solo-regulated firms that will be coming into the regime in December 2019 and insurers, for which the regime commenced in December 2018


    Related Link: Results of Review


    Keywords: Europe, UK, Banking, SM&CR, Operational Risk, Governance, Conduct Risk, PRA, FCA

    Related Articles

    APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness

    APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).

    December 02, 2021 WebPage Regulatory News

    EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance

    The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).

    December 01, 2021 WebPage Regulatory News

    FSB Sets Out Good Practices for Crisis Management Groups

    The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.

    November 30, 2021 WebPage Regulatory News

    APRA Penalizes Heritage Bank for Incorrect Reporting of Capital

    The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.

    November 29, 2021 WebPage Regulatory News

    OSFI Releases Annual Report 2021-2022

    The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.

    November 29, 2021 WebPage Regulatory News

    OSFI Updates Timeline for Implementation of Certain Basel Rules

    Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.

    November 29, 2021 WebPage Regulatory News

    EC Defers Adoption of Regulatory Standards for Disclosures Under SFDR

    EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.

    November 29, 2021 WebPage Regulatory News

    FCA Releases MIFIDPRU Application Forms and Third Set of Rules on IFPR

    The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.

    November 29, 2021 WebPage Regulatory News

    APRA Finalizes Capital Adequacy Standards for Banks

    The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.

    November 29, 2021 WebPage Regulatory News

    CPMI-IOSCO Seek Comments on Access to Central Clearing and Portability

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.

    November 29, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7751