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SM&CR: A spotlight on individual accountability

11/01/19

By end of this year, senior managers could be held personally accountable for any conduct failings within their areas of oversight under the Duty of Responsibility introduced as part of the Senior Managers & Certification Regime (SM&CR).

The Senior Managers Regime hinges upon the senior management functions (SMFs), which must be allocated to a senior manager, and prescribes responsibility for a specific area of the business. This ensures that there are no gaps in the oversight of the firm. Individuals holding SMFs will also be accountable for their contributions to collective decisions.

A duty of responsibility will also apply to senior managers, enabling the FCA to take action against an individual in cases where:

  • The firm has found to be in breach of a regulatory requirement;
  • At the time, the senior manager in question was responsible for the area of the business relating to the contravention; and
  • They did not take the steps that would be reasonably expected to prevent the breach from occurring or continuing.

The burden of proof lies with the FCA and the regulator will consider all relevant laws and regulations, as well as the individual’s statement of responsibilities, when applying the Duty of Responsibility. Interestingly, the FCA has chosen its wording carefully to avoid giving the impression that competing priorities will be an accepted reason for not taking appropriate steps to mitigate or prevent a breach.

With the regime enabling the FCA to take action against employees who have been found to be in breach of the Conduct Rules, individuals may be concerned about how to ensure they remain on the right side of the rules. Here are three areas to consider:

Culture: Ensuring your firm has a culture that puts the customer at the heart of all decisions and is aligned to regulatory expectations will help give senior managers the confidence that the firm is operating in line with its obligations.

Systems and Controls: Appropriate systems and controls are key to demonstrating ongoing compliance and ensuring that a senior manager has appropriate oversight of the areas they are responsible for

Delegation: SM&CR doesn’t prevent senior managers from delegating their responsibilities to others. However, they remain ultimately responsible for those duties and should retain oversight of these activities.

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