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:
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.
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.
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