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The Rising Spectre of Senior Manager Accountability

Posted 13/01/16

In June 2015, the FCA and PRA published new rules that confirmed their new focus on enforcing direct accountability among senior management in tier 1 banks. An attempt to create an aura of personal accountability within the fabric of The City, it follows earlier regulations regarding the payment of bonuses.

In the FCS press release Mark Wheatley, their former Chief Executive, commented “today we have given clarity on rules that will embed personal accountability into the culture of The City. New conduct rules will add further momentum to improving standards across the industry.”

A vague enough statement – so do the regulations actually have any teeth? How much impact will they have or are they having?

So, what does this mean for senior management?

The new regulations are set to be implemented in March 2016, with a deadline of 8th of February to submit updated protocols.

The most important change is the ‘Senior Managers Regime’, which states that for individuals who are subject to regulatory approval, firms must allocate a range of responsibilities for them and regularly assess their fitness and propriety. In reality, what this means is that regulatory breaches can be put on the shoulders of senior managers, who may be subject to substantial financial penalties, and their employing firms must recognise this and make sure they are shouldering the burden of responsibility correctly.

However, in October 2015 the Treasury, under significant pressure, watered down the wording of some of the new requirements slightly. Now, rather than requiring senior managers to prove they’ve done everything in their power to prevent a breach, they instead will have a ‘duty of responsibility’ clause. That means they will still need to make sure their firm is doing everything it can to ensure compliance at all times, but the burden of proof lies with the regulator (as is normal in UK law) rather than the senior managers themselves. If found guilty, though, they will still face serious recrimination.

So. While it’s slightly less pressure on senior management, it’s still pressure. They need to be constantly vigilant and take all steps possible to be sure that everything that needs to happen to keep the organisation compliant, is. That way, should anything happen, they have bags of evidence of their own due diligence.

From a man management perspective, it means a tighter leash on their staff. But it also has technological repercussions; not least that they must now look closely at the adoption of new automated technologies for record-keeping and recording.

Communications recording is a central part of FCA compliance and it’s becoming increasingly clear that current voice recording technologies are not completely reliable – after all, almost every bank has now invested in some kind of solution but fines are still being handed out.

This means that senior managers either have to:

-Make sure the Compliance department is personally studying the recording programs to ensure they are working

-Look into new technologies that will automate this process, thereby avoiding costly human error

It’s certainly a tense time for senior managers in the financial sector, even with the new watered down wording, and it’ll be interesting to see how banks respond. The new regulations are indicative of a trend, and it’s always better to be proactive than reactive when large sums of money are at stake.

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