Understanding, spotting, reporting the breach

Posted: 23rd March 2015

You’ll all know the Senior Managers Regime is well on its way. [SMR]

Once in full effect, it’ll require any conduct rule breach by senior managers to be reported within seven days.

Employees who hold ‘significant harm functions’ (SHF) (those “involved in aspects of a firm’s affairs that might involve a risk of significant harm to the firm or any of its customers”) will be reporting on an aggregate quarterly basis – that is, unless the Prudential Regulation Authority (PRA) gets its way; anyone else notice that change in December’s Consultation Paper? It wants those SHFs to report breaches in seven days too…

If a firm tried to implement the rules without investing some real thought into how they’re doing so, these requirements could encourage the blame and cover-up culture that the regulators have tried to avoid.

So how should firms guard against that?

Be careful how you ‘drill’ into your staff the new conduct rules and their significant risk of harm to customers. Staff also need to be clear on if, how and when staff will be penalised for a breach.

How can you implement the new regime but still drive an open, supportive and well informed environment? 

Staff need to be well trained on recognising breaches and feel comfortable in reporting all issues and near-misses. In this way, the root causes of these breaches can be analysed, put right and learnt from rather than hidden and misunderstood.

BUT HOW TO IDENTIFY BREACHES?

“If it was easy, everyone would do it.”

Conduct rule breaches can be hard to identify. The starting point, therefore, is to think about how to make them practical and bring them to life. How about linking it to your conduct model? To begin with, break down the customer journey and be clear in defining what good practice and a fair outcome looks like at each point of the journey – with respect to each conduct rule. You can then turn this outlook around and define what a breach would look like at each point. You can then set up controls as a part of your quality assurance (QA) process – training your QA staff so they can identify breaches, in addition to identifying unfair outcomes.

But – is there an abridged way of identifying these breaches today?

Test yourself now with our ‘spot the non-breach’ game, and message amehta@huntswood.com with what you think is NOT a breach on the list below:

1. Misleading a client by failing to disclose a material exclusion or limitation
2. Falsification of a document to assist a customer with a mortgage application
3. A customer is provided with a product which differs to the one applied for by that customer, however there is evidence that the customer understands the differences and understands the product they have purchased
4. An individual provides incorrect information about their employment history
5. Failure to attend an interview or answer questions put by a regulator
6. Following a complaint, it is found that a customer was provided inadequate information about the product at the time of the sale