FCA confirms accountability rules for wholesale traders and interim rules on regulatory references

The Financial Conduct Authority (FCA) has today published the final rules confirming their approach to improving individual accountability for those carrying out wholesale activities, such as algorithmic and high-frequency trading, in banks, building societies, and Prudential Regulation Authority (PRA) designated investment firms. The rules also provide clarity on aspects of the Regime’s territorial application.

These rules form part of the accountability framework introduced by the FCA and the PRA to strengthen individual accountability in the banking sector.

The new measures will mean that the certification regime will now be extended to those performing two new functions - the “client-dealing” function and the “algorithmic trading” function. Firms will have until 7 September 2016 to apply these rules.

Tracey McDermott, Acting Chief Executive at the Financial Conduct Authority, said: “Today we made rules that will extend the certification regime to more fully capture people carrying out certain wholesale activities.

“We are determined to embed a culture of personal responsibility within the banking sector. Clear individual accountability should focus minds, drive up standards, and make firms easier to run and to supervise. And if things go wrong, it will allow senior managers to be held to account for misconduct that falls within their area of responsibility. “

Today’s publication follows the final rules, published in July 2015 for UK RAPs and December 2015 for Foreign Branches, which set out the FCA and PRA’s approach to strengthening accountability in the banking sector.

The rules come into effect on 7 March 2016. The Conduct Rules will also apply to individuals outside the Senior Managers and Certification Regimes from 7 March 2017.

This wide package of accountability reforms also includes proposals for regulatory references for candidates applying for senior manager and significant harm functions under the certification regime in banks, building societies, credit unions, PRA-designated investment firms and insurers.

The responses to the regulatory references consultation paper CP15/31 raised a number of complex issues which require further deliberation before final rules are made. Accordingly the FCA has, as an interim measure, continued the current referencing requirements under the Approved Persons Regime for pre-approved roles.

The FCA remains committed to implementing a more comprehensive framework for regulatory references later in the year. The final rules will be accompanied by a transition period to allow firms time to implement any changes.

Notes to editors

PS 16/3 Strengthening accountability in banking  - Feedback and final rules on extending the Certification Regime to wholesale market activities CP 15/22 and Feedback on Regulatory References CP 15/31 and rules on referencing

The PRA and FCA remain committed to implementing a more comprehensive framework for regulatory references later in the year. It is proposed that the regulators’ remaining final rules on regulatory references would be published after the commencement of the SM&CR and SIMR, and would enter into force following an appropriate period of time.

The Senior Managers Regime will ensure that senior managers can be held accountable for any misconduct that falls within their areas of responsibilities, the new certification regime and conduct rules aim to hold individuals working at all levels in banking to appropriate standards of conduct -  in particular:

  • the Senior Managers Regime focuses on individuals who hold key roles and responsibilities in relevant firms. Preparations for the new regime have involved allocating and mapping out responsibilities and preparing statements of responsibilities for individuals carrying out senior management functions (SMFs). While individuals who fall under this regime will continue to be pre-approved by regulators, firms will also be legally required to ensure that they have procedures in place to assess their fitness and propriety before applying for approval and at least annually afterwards
  • the certification regime applies to other staff who could pose a risk of significant harm to the firm or any of its customers (for example, staff who give investment advice or submit to benchmarks). These staff will not be pre-approved by regulators and firms’ preparations will need to include putting in place procedures for assessing for themselves the fitness and propriety of staff, for which they will be accountable to the regulators. These preparations will be important not only when recruiting for roles that come under the certification regime but when reassessing each year the fitness and propriety of staff who are subject to the regime
  • the conduct rules set out a basic standard for behaviour that all those covered by the new regimes will be expected to meet. Firms’ preparations will need to include ensuring that staff who will be subject to the new rules are aware of the conduct rules and how they apply to them


Key milestones

7 March 2016: Start date of Senior Managers and Certification Regime and application of the conduct rules to these individuals.

7 September 2016: Deadline for firms to identify staff performing client-dealing and algorithmic trading functions, and application of the conduct rules for staff performing these functions.

7 March 2017: Application of conduct rules to staff outside the SM&CR and deadline for firms to issue certifications for individuals under the Certification Regime.

On 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).

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.

Find out more information about the FCA.