FCA sets out approach to Non-Executive Directors and the Senior Managers Regime

Published: 23/02/2015     Last Modified: 23/02/2015

Non-Executive Directors (NEDs) with specific responsibilities, such as Chairman, will come under the new Senior Managers Regime (SMR), the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) confirmed today.

Following a detailed consultation across industry and with stakeholders it was also decided the regime would not apply to those NEDs who do not perform delegated responsibilities.

Martin Wheatley, Chief Executive of the FCA, said:

“Our approach is driven by wanting to ensure firms are managed in a way that reflects good governance and promotes the right culture and behaviours. Having a narrow SMR will also allow the FCA to focus regulatory resources on those responsible for key business areas and board committees. We want those senior individuals to be held accountable for the decisions they make and oversee. This is what people inside and outside the banking sector expect.

“NEDs play a vital role in providing challenge to and an independent oversight of the executive directors. Including all NEDs in the new regime would risk the unintended consequence of changing the whole nature of this vital role.”

The NED roles that will be in scope of the SMR are:

  • Chairman;
  • Senior Independent Director;
  • and the Chairs of the Risk, Audit, Remuneration and Nominations Committees.

The individuals performing these roles will be subject to all aspects of the Senior Managers Regime, including regulatory pre-approval, the FCA’s and PRA’s new conduct rules and the presumption of responsibility. Those NEDs who fall outside of the SMR will no longer be subject to regulatory pre-approval, will not be subject to the conduct rules nor the presumption of responsibility.

Within the regime, senior executives will be expected to take accountability for the conduct of the business for which they are responsible. They are in a position to exercise a strong influence on the business and its culture through incentives and the messages that they give to staff.

This clear line of accountability can have a positive effect on the culture of firms and on outcomes for consumers and markets.

This paper also includes general guidance on the role and responsibilities of NEDs as well as consulting on the FCA’s approach to NEDs in Solvency II firms, which the FCA proposes to align to the approach being taken for deposit takers and PRA designated investment firms.

The FCA and PRA also published a consultation on proposed whistleblowing rules for banks, building societies, credit unions and insurers. This includes a requirement for firms to appoint a whistleblowers’ champion, who will be responsible for overseeing the effectiveness of internal whistleblowing arrangements, preparing an annual report to the board on their operation, and reporting to the regulator where an employment tribunal finds in favour of the whistleblower. The importance of robust internal whistleblowing procedures within firms was a key conclusion of the Parliamentary Commission on Banking Standards’ report.

Notes to editors

  1. Consultation paper: Approach to non-executive directors in banking and Solvency II firms & Application of the presumption of responsibility to Senior Managers in banking firm
  2. The FCA and Prudential Regulation Authority (PRA) consulted in July and December 2014 on a new regulatory regime for individuals in banking, designed to strengthen individual accountability. This included the SMR, which seeks to promote a clear allocation of responsibilities to senior individuals in deposit-takers and dual regulated investment firms. The combined scope of the FCA’s and PRA’s SMR as proposed in the July CP was that all board members in these firms would be Senior Managers and therefore subject to all the relevant accountability requirements in FSMA, including the Presumption of Responsibility and new criminal offence in the case of bank failure.

  3. The FCA plans to publish the following documents over the coming months, including:
    • A consultation on guidance on what may constitute reasonable steps and the application of the presumption of responsibility under the SMR, including to in-scope NEDs;
    • for deposit-takers, a consultation on the application of the individual accountability regimes to UK branches of foreign banks;
    • for deposit-takers, a comprehensive feedback statement responding to our consultations;  
    • for Solvency II firms, a consultation, including forms, transitionals and consequentials and on governance; and
      for non-directive insurers, a consultation on individual accountability.
  4. These documents will be followed by final rules.
  5. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  6. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  7. Find out more information about the FCA.

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