Accountability rules in play

Posted: 28th August 2015

Huntswood has been speaking and working with firms from the operational level through to the board level about the new accountability rules.

We’ve seen and helped many firms with the challenges they face. Now that most of the Senior Managers and Certification Regime rules have been finalised, we’ve seen the journey to implementation become more of a reality than ever.

Once the two regimes commence in March 2016, as a senior executive in these sectors, you could be held personally culpable if anything goes wrong. Gladly for all, we can confirm that there were no nasty surprises in the newly confirmed rules.

FINAL AND ABSOLUTE

The paper is interspersed with clarifications to what was originally consulted on. The tangible changes revolve around breach reporting and non-executive directors.

Breach reporting

The final rules allow firms to report suspected and actual breaches by Certification or Conduct Rules only staff on an annual basis, rather than quarterly for the following reasons:

• to reduce the burden on firms in terms of the need to submit reports so that it remains proportionate
• to allow firms to assess in many more cases, whether or not a suspicion is founded before reporting it. The FCA would not expect firms to report suspicions that have already been investigated and proven to not be founded – only suspicions that are either proven or that remain open at the time of reporting will need to be included

But, in terms of senior managers, actual or suspected breaches of the Conduct Rules by Senior Managers under the SMR must still be submitted by a firm within seven business days of the firm becoming aware of the actual or suspected breach.

Non-executive directors

The rules surrounding non-executive directors have been modified as follows:

• Amended guidance on the role of a NED as a committee chair in relation to providing oversight of executive decisions
• An additional point relating  to the role of the Chair of the Nomination Committee in safeguarding the independence of the committee
• The scope of the guidance on the role of a NED as committee chair has been expanded in the FCA’s final Handbook text to apply to all approved NEDs, whether or not they are performing a PRA or FCA-designated Senior Management Function. The FCA can still take action against PRA approved NEDs
• The guidance on the role of a NED as chair has been applied to other (non-approved) chair roles, subject to the specific responsibilities of the committee in question

Finally, the regulators have also confirmed that firms need not include in their Certification Regime anyone that the regulators do not explicitly require them to include.

WHAT’S TO COME?

As well as the final rules, the paper also includes examples of maps and references to forms. The FCA has confirmed it is yet to provide guidance on:

• the presumption of responsibility
• enforcement
• regulatory references
• senior management responsibility for whistleblowing
• reporting breaches of conduct rules

Do also note that the FCA is consulting on certification of individuals involved in wholesale activity, following the recent FOREX and LIBOR scandals. This would mean extending tighter regulation to 150,000 employees of the currencies, commodities, and fixed income markets. Under the Certification Regime, this would include individuals such as traders and the staff who help set the prices of financial benchmarks.

Huntswood’s new White Paper ‘Transitioning to individual accountability’ is a must read for anyone looking to successfully create, implement and embed a project plan for the new rules.

White Paper – Transitioning to individual accountability