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Enforcement Watch

Banking Standards Board consults on guidance for SMCR certification processes
Enforcement Watch

Enforcement WatchIssue 23 | September 2017

Date
26 September 2017

On 13 July 2017, the Banking Standards Board (BSB) published its consultation on guidance to help Banks navigate the process of certification under the Senior Management and Certification Regime (SMCR).


Banking Standards Board consults on guidance for SMCR certification processes

On 13 July 2017, the Banking Standards Board (BSB) published its consultation on guidance to help Banks navigate the process of certification under the Senior Management and Certification Regime (SMCR). The consultation closes on 29 September.

As readers of this publication will know, the certification regime replaced the Approved Person regime (APR) for certain employees at Banks below senior management level. The certification regime applies to a broader category of employees (with so-called "specified-harm functions") and, crucially, relies on the Bank to determine the "fitness and propriety" of its individuals annually, rather than having the FCA assess "fitness and propriety" as a one-off when the job is first taken up. 

The BSB has been consulting on guidance relating to the criteria for the assessment of "fitness and propriety" by Banks dealing with certification.  The BSB proposes that the guidance under consultation will sit alongside other BSB guidance on the processes of certification (which includes, for example, a welcome requirement for an appeal against a certification decision). 

The current consultation sets out a table of factors that Banks might consider when evaluating information that calls "fitness and propriety" into question (such as intention and wider regulatory impact).  It also indicates circumstances in which remediation may be necessary or desirable as part of or prior to re-certification (such as financial difficulties, conflict of interest issues and technical issues).  This might for example be relevant where competence or financial standing is in issue, and we may even see complaints by individuals who are denied the option of remediating.     

The BSB consultation accepts that each Bank will have its own "risk tolerance".  It anticipates that this will inform Banks' decision making on certification, from deciding to what extent "fitness and propriety" is impacted to whether or not remediation is possible or desirable.  In this sense the proposed guidance does not seek to be overly prescriptive and recognises that different Banks' approaches will vary depending on their attitude to risk. 

The FCA Handbook provides no real guidance on the process of certification expected from Banks.  As such, the proposed BSB guidance ought to be useful for Banks and for certified individuals. However, the fact of differing "risk tolerances" between Banks does of course mean that its usefulness will only go so far. That different authorised firms and Banks are culturally more or less inclined to work with an employee deemed to have issues around "fitness and propriety" will come as no surprise to anyone accustomed to dealing with the Approved Persons' Regime.  However, this "risk tolerance" spectrum does inevitably make it harder to ensure that processes are consistently fair across all Banks. For example, Banks will inevitably adopt different approaches to the relevant standard of proof (something that the existing BSB guidance is silent on) and to what extent the individual has to establish his/her own "fitness and propriety" when it is challenged.  As matters stand, there will only be limited opportunity for regulatory oversight of bad or unfair certification decisions. For those individuals already in employment whose certification is removed or not granted, we may see disputes being played out in litigation, rather than in front of the regulator.