A step too far – a warning for Private Prosecutors
In the not too distant past, a directorship in a bank, insurance company or financial services firm was seen as a lucrative and career-defining role. Many directors built a career out of having a portfolio of Board appointments, which involved a significant degree of responsibility to the organisation, but, in many circumstances, little personal regulatory oversight.
However, in the wake of the financial crisis of 2007/2008, the attractiveness of being a director of a Board in the financial services sector dulled somewhat. The Parliamentary Commission on Banking Standards – Changing Banking for Good, published in 2013, called for a greater level of senior level accountability in banks and financial institutions. In response, the Senior Managers and Certification Regime (“SMCR”) was introduced in the banking sector between March 2016 and March 2017. A new set of conduct rules was also issued for those working in the banking industry.
The FCA has now indicated that it intends to extend these regimes across the wider market, to include all firms authorised under the Financial Services and Markets Act 2000 (FSMA), for example insurance companies, asset managers, investment firms and consumer credit firms.
How then may this affect directors in the companies to which the regimes will apply, when they are implemented during the course of this year and next?
The Senior Managers regime covers senior individuals performing “Senior Management Functions”. Those individuals need FCA approval for their roles and a “Statement of Responsibility” setting out what they are personally accountable and responsible for. At least once a year firms need to certify that Senior Managers are suitable to do their jobs.
The Certification Regime covers individuals within firms who aren’t Senior Managers but perform “certification functions”. These are functions which could cause significant harm to the firm or its customers. These individuals need to be certified as ‘fit and proper’ by their firm, but will not be formally approved by the FCA. There will be a responsibility on firms to check and certify individuals at least once a year.
It is likely that executive directors within an organisation who have certain prescribed roles and duties on the board, will fall within the ambit of the Senior Managers Regime. Non-executive directors with specific responsibilities, such as Chairman, Senior Independent Director and Chair of the Risk, Audit, Remuneration or Nominations Committee will also fall within the regime.
Senior Managers carrying out the prescribed roles are under a ‘duty of responsibility’. Under this responsibility, the FCA can take action against Senior Managers if both:
Undertaking a directorship in a firm which is currently, or will become, subject to the Senior Managers Regime therefore comes with a significant level of scrutiny. This may cause those applying for directorships to think twice: is this the career-defining role that they covet, or could undertaking it prove to be a poisoned chalice should things go wrong?
This blog was written by Julie Matheson as part of our blog series on Directors' liabilities. Julie is a Partner in Kingsley Napley’s regulatory department. She advises financial professionals on their regulatory responsibilities and represents them in proceedings brought by the financial regulators.
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