Friday, April 10, 2015

Britain’s FCA and PRA to Introduce New Rules on Accountability

The Financial Conduct Authority ("FCA") and the Prudential Regulatory Authority ("PRA") will be introducing new rules to enhance individual responsibility and accountability in the financial industry. The new rules come after bankers were punished following taxpayer bailouts of UK lenders during the 2008 financial crisis.

The PRA has published the first set of rules to implement the new Senior Managers Regime and Certification Regime for UK banks, building societies, credit unions and PRA-designated investment firms and the Senior Insurance Managers Regime for Solvency II insurers.

The Senior Managers Regime will define the lines of responsibility at the top of banks and will enhance the regulators' ability to hold senior individuals accountable. Banks will also be required to regularly vet their senior managers for fitness and propriety.

The Certification Regime will require firms to assess the fitness and propriety of employees in positions where the decisions they make could pose significant harm to the bank or any of its customers such as staff who are in client-facing roles. Banks will be required to certify to the FCA and the PRA that employees subject to the regime are fit and proper to carry out their functions.

The Senior Insurance Managers Regime for Solvency II insurers will be applicable to senior staff who hold key functions in insurance companies. The regime will allocate clearly defined responsibilities to senior insurance managers, similar to the rules laid out for the banking industry.

The rules for both the Senior Manager and Certification regimes will come into force on 7 March 2016. Some aspects of the Senior Insurance Manager’s Regime will apply from 1 January 2016 corresponding with the implementation of Solvency II. A further set of rules which contain aspects of the regimes which are still to be finalized in conjunction with the FCA will be published later on in the year. They include how the accountability regime will apply to branches of non-European Economic Area (“EEA”) banks and how the Senior Insurance Manager’s Regime will apply to Non-Executive Directors.

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