FCA publishes rules on how it will apply the new accountability regime to UK branches of overseas banks and Solvency II firms

The Financial Conduct Authority (FCA), alongside the Prudential Regulation Authority (PRA), has today published near final rules confirming how it will apply the new accountability regime to UK branches of overseas banks, and also confirms reforms to the approved persons regime for Solvency II firms.

Today’s publication follows joint FCA-PRA final rules on improving individual accountability in the UK banking sector, which was published on the 7 July.

Martin Wheatley, Financial Conduct Authority chief executive, commented:

"Today’s rules are the latest changes aimed at embedding personal accountability in the culture of financial services and are a crucial step in rebuilding public trust."

UK branches of foreign banks

In June 2013, the Parliamentary Commission for Banking Standards (PCBS) published its report "Changing Banking for Good", setting out recommendations for legislative and other action to improve professional standards and culture in the UK banking industry. This was followed by legislation in the Banking Reform Act 2013 to replace the Approved Persons Regime for banks, building societies, credit unions and PRA-designated investment firms with a new regulatory framework for individuals.

The new accountability regime covers the Senior Managers Regime; the Certification Regime; and new Conduct Rules. While 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 ensure individuals working at all levels in banking maintain appropriate standards of conduct.

On 3 March 2015, the Treasury announced, following consultation, its intention to apply the new accountability regime to UK branches of foreign banks (‘incoming branches’) in a Written Ministerial Statement (WMS). The Treasury laid the secondary legislation extending the regime to incoming branches in Parliament on Monday 20 July and expect to finalise this in Autumn 2015. The FCA has today published near final rules on how it will apply the accountability regime to those incoming branches.

The rules are aimed to address the inherent differences between incoming branches and UK relevant firms, while minimising the potential for arbitrage across UK relevant firms and incoming branches, which can pose similar conduct risks to the UK market. For European Economic Area branches, the proposals also reflect the split of home and host state supervisory responsibilities under the relevant single market directives.

Accountability in Solvency II firms

The FCA has today set out final rules for the approved persons regime for individuals working in Solvency II firms. These changes are an important part of the overall drive to raise standards of individual conduct across the financial services industry. These rules take into account provisions in the Financial Services (Banking Reform) Act 2013 that apply to insurers, changes that the PRA are making to their approval regime for these firms, and requirements in Solvency II around the governance of firms and the fitness and propriety of key function holders within them.

The rules include:

  • Changes to the scope of the FCA’s approved persons regime. These will ensure robust oversight and continued enforcement power over key individuals who can significantly impact the FCA objectives, whilst maintaining a proportionate approach;
  • Changes to the fitness and propriety assessments of candidates for FCA regulated Significant Influence Function (SIF) roles to reflect the Solvency II framework and EIOPA guidelines. These will support the implementation of the fitness and propriety requirements of Solvency II in a way that is proportionate and minimises the burden on firms, by avoiding them having to make further submissions to the PRA as the lead regulator for the transposition of these requirements;
  • New Conduct Rules for approved persons in Solvency II firms to encourage appropriate behaviour by staff, in particular through an enhanced focus on treating customers fairly and responsible delegation by senior staff; and

Changes to governance arrangements, particularly to support enhanced accountability of senior staff in firms.

Notes to editors

  1. Feedback Statement 15/3 Strengthening accountability in banking: UK branches of foreign banks – Feedback on FCA CP15/10
  2. Policy Statement 15/21: Changes to the Approved Persons Regime for Solvency II firms: Final rules (including feedback on CP14/25, CP15/5 and CP15/16), and consequentials relating to CP22/15 on strengthening accountability in banking
  3. Consultation Paper 15/25: Changes to the Approved Persons Regime for insurers not subject to Solvency II: reforms for larger Non-Directive Firms, feedback on CP 15/15, forms, consequentials and transitional aspects
  4. The Accountability Regime in relevant authorised persons (Banks, building societies, credit unions and PRA-designated investment firms)

    The Senior Managers Regime focuses on individuals who hold key roles and responsibilities in relevant firms. Preparations for the new regime will involve 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 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. Individuals subject to either the SMR or the Certification Regime will be subject to Conduct Rules from the commencement of the new regime on 7th March 2016, while firms will have a year after commencement to prepare for the wider application of the Conduct Rules to other staff.

  5. Future publications on banking accountability
    • Final guidance on Presumption of Responsibility and other enforcement-related matters – autumn 2015
    • Consultation Paper on regulatory references – autumn 2015 (with final rules to follow in time for commencement of the regime)
    • Final rules on the inclusion of wholesale activities in the Certification Regime – in time for commencement of the regime
  6. Preparing for implementation
    • Submission deadline for grandfathering notifications – 8 February 2016
    • Commencement Date of SMR and Certification Regime – 7 March 2016
    • First annual submission notifying breaches of the Conduct Rules required – end October 2016
    • Application of Conduct Rules to staff who are not within the SMR or Certification Regime – 7 March 2017
    • First annual submission notifying breaches of the Conduct Rules including staff who are not within the SMR or Certification Regime – end October 2017
  7. PCBS report: Changing Banking for Good. Volume 1 and Volume 2.
  8. On 1 April 2013, the 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). On 1 April 2014, the FCA took over responsibility for consumer credit regulation.
  9. 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.
  10. Find out more information about the FCA.