The Fair and Effective Markets Review – a catalyst for the Senior Managers and Certification Regime?

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Summary: The creep of financial regulation is gathering pace as we enter the summer of 2015. Yesterday’s Fair and Effective Markets Review report into wholesale fixed income, currency and commodities (FICC) markets has the following key recommendations in respect of the Senior Managers and Certification Regimes. If the recommendations are implemented, it's a matter of time before they are extended beyond FICC markets to all authorised firms in the UK

The creep of financial regulation is gathering pace as we enter the summer of 2015.  Yesterday’s Fair and Effective Markets Review report into the wholesale fixed income, currency and commodities (FICC) markets has the following two key recommendations in respect of  the Senior Managers and Certification Regimes.  If these recommendations are implemented, it can only be a matter of time before they are extended beyond the FICC markets to all authorised firms in the UK:

  1. It is proposed that most aspects of the SMCR – including statements of responsibility for senior managers, certification of significant harm staff and applying conduct rules to all staff who are not in administrative roles - be extended beyond banks and PRA-authorised insurers, to include other authorised firms operating in the FICC markets (for example, MiFID investment firms, including asset managers and interdealer brokers; hedge funds under the AIFMD; and fund managers under UCITS).  It appears that the reverse burden of proof and the criminal offence of reckless mismanagement are not to be extended beyond banks, however. There is no clear timeframe at present to the extension of the SMCR in this way; however, it will require first a process of consultation by the regulators, and then amendments to primary legislation.
  2. It is proposed that, for firms operating in FICC markets, the PRA and FCA consult upon  a template regulatory reference, to prescribe the minimum amount of information to be provided by firms when giving regulatory references in respect of certification staff.  The aim here is to combat the rather curiously named “rolling bad apple” syndrome whereby individuals can build up a poor conduct record and simply erase it by moving between firms regularly. The recommendation is for this template to be prepared before the SMCR go-live date on 7 March 2016.  Page 64 of the report sets out the proposed contents for a regulatory reference template, which go beyond the current requirements regarding regulatory references in the FCA Handbook at SUP 10A.15 (for example, it is proposed that a firm would have to include in the reference to a prospective new employer the fact that an individual had resigned while under investigation for misconduct, or for breach of a conduct rule).  This change will require firms to review their policies and procedures for giving and taking up regulatory references, as well as the provisions relating to references in their standard form settlement agreements.

Report: How should you respond to developments in financial regulation this year?

 

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• Includes over 30 practical articles and a calendar setting out the key dates for your diary.

• Key topics covered include MiFID II, SMCR / SIMR, cyber risk and how to survive a regulatory interview.

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