Senior Managers Regime
Individual accountability and reasonable steps
The Senior Managers Regime (SMR) and Certification Regime commenced on 7 March 2016 for banks, building societies, credit unions, and PRA-designated investment firms based in the UK and for UK branches of foreign banks.
This paper seeks to help Senior Managers understand what individual accountability means in practice and how they can implement the SMR in a way that allows them to demonstrate and evidence their ‘reasonable steps’.
This new regime represents a complete overhaul of the current Approved Persons Regime following the recommendations of the Parliamentary Commission on Banking Standards, which was established in June 2012 to consider the professional standards and culture of the UK banking sector after the financial crisis.
The SMR largely refines and formalises existing regulatory expectations on accountability and governance. However, the increased onus on individual accountability, in particular the introduction of the statutory duty of responsibility – requiring Senior Managers to take reasonable steps to prevent regulatory breaches from occurring, or continuing to occur, in their area of responsibility – is leading many Senior Managers to reassess the appropriateness of the scope of their responsibilities and to review their approach to controlling and managing these areas of responsibility.
- Supervision and enforcement is increasingly going to focus on the actions of individual Senior Managers as opposed to the overall actions of the firm. Senior Managers should be cognisant of the need to ensure that they have full control of their areas of responsibility and that their individual actions can be evidenced and are defensible.
- Senior Managers are potentially taking ‘reasonable steps’ every working day but do not necessarily think of their actions in these terms. Making decisions on resourcing allocation, assessing the competence of staff, reading and responding to management reports – all of these could be considered examples of reasonable steps if they are done appropriately.
- The SMR should not fundamentally change how well-run firms organise their businesses. The concept of reasonable steps should already be embedded in Senior Managers day-to-day actions in managing and controlling their areas of responsibility. The challenge posed by the SMR is to do this in an efficient and consistent way across the firm to reduce the administrative burden on already overloaded businesses and support functions.
- Whilst evidencing reasonable steps is ultimately the responsibility of Senior Managers, it is prudent for banks to establish a high level framework in which the expectations for record keeping are clearly articulated. By setting the tone from the top a bank can make it easier for new standards to be adopted and to drive consistency in approach.