72,000 managers in London firms could be held personally responsible under new FCA rules

The number of senior managers in financial services firms who could be held personally responsible for misconduct has increased to 72,000, according to new research from law firm Cleveland & Co.

This comes after City watchdog the Financial Conduct Authority (FCA) announced it would broaden the scope of the Senior Managers and Certification Regime (SMCR) from covering just banks to the whole of the financial services industry, in an effort to increase accountability.

The number of people who could potentially be penalised under the extended SMCR could rise more than 20-fold, from the 3,159 who fell under the regime last year, according to FCA data seen by Cleveland & Co.

“The scale of the increase highlights the size of the task that many companies face,” said Emma Cleveland, managing director of Cleveland & Co.

“While the biggest companies with larger budgets should be able to handle the regulatory changes, it is smaller companies with the biggest mountain to climb.”

The SMCR makes it a criminal offence for senior managers to take a decision which causes their institution to fail, as long as they were aware of the risk of this happening and their conduct fell significantly short of what could reasonably be expected.

In a consultation paper released last month, the FCA estimated that compliance with the new regime could cost all FCA-regulated firms a total of up to £552.3 million in one-off costs and a further £190.5 million in ongoing costs, as well as adding an extra £13.4 million to the watchdog’s own expenditures.

Jonathan Davidson, executive director of supervision for retail and authorisations at the FCA, said:

“The extension of the SMCR is key to driving forward culture change in firms. This is about individuals, not just institutions.
The new Conduct Rules will ensure that individuals in financial services are held to high standards and that consumers know what is required of the individuals they deal with.

The regime will also ensure that senior managers are accountable both for their own actions and for the actions of staff in the business areas that they lead.”

While banks, building societies, credit unions and Prudential Regulation Authority (PRA)-designated investment firms previously fell under the regime, all senior staff at FCA-authorised firms including financial advisers, private equity firms, and fund managers will now fall under its jurisdiction.

These firms will have to “overhaul compliance teams and commit further resources to training their staff”, said Cleveland & Co.

“In effect, the FCA is moving responsibility for ensuring that staff are fit and proper to the firms themselves,” said Jason Butwick, an employment partner at law firm Dechert.

“Firms will face a lot of work mapping responsibilities to their senior managers and putting in place systems for annual certifications for their certified staff. They will also have to set up procedures for assessing potential Conduct Rule breaches.”

• Five conduct rules which apply to staff
• Clearly set-out responsibilities for senior managers
• A compulsion to certify individuals for their fitness every year if they are not covered by the Senior Managers Regime but their jobs significantly impact customers or firms.