Enforcement Watch

Martin Wheatley's views on how the new SMR will work

Martin Wheatley's views on how the new SMR will work

In a speech delivered in mid-March, Martin Wheatley (the Chief Executive of the FCA) discussed some of the key aspects of the pending reform to the regime for individual accountability (the most recent developments in relation to these reforms are discussed in this publication, see "Further steps towards the new senior management regime"). Whilst there is nothing particularly new in what he said, it is at least interesting to see the slant he chose to put on matters, and to consider how that might play out in the enforcement arena.

By way of background, Wheatley commented that the new regime of personal responsibility was not just "public theatre", but was seen as integral to creating a robust financial services sector that was widely trusted. It would have been inconceivable before the crash, he noted, to predict that the future of regulation in the United Kingdom was a move away from the "light touch" towards accountability. This shift, he said, has been the result of the crash and the ensuing public and political pressure.

Wheatley expected that the new regime for senior managers (with its Statements of Responsibility and responsibilities maps) would ensure that the extent and nature of individual responsibility was "clear and immediate". The FCA would no longer be required to spend weeks/months trying to cut through "corporate filibustering" to understand the lines of management responsibility, but would benefit from a presumption of responsibility in relation to senior managers (the operation of the presumption has been covered by us previously, see for example "New Banking Reform Act strengthens action against individuals" and elsewhere in this publication see "Further steps towards the new senior management regime").

Having in that way pointed to the real impact the regime might have on enforcement, Wheatley then went on to recognise that there was concern in the industry about whether the presumption would be operated fairly and referred to the guidance around the presumption that has now been published in draft (on this guidance see "Further steps towards the new senior management regime" in this publication). Subject to that guidance, he admitted that it was not possible for the FCA to state precisely the steps that senior managers were expected to take to rebut that presumption – that would depend on a number of factors such as the size of the firm and what the senior manager knew. However, senior managers were, consistent with common sense, expected to understand the relevant sector of their business and to act with integrity and within the law. Whilst it may be cold comfort to some, he asserted that the presumption would be operated proportionately and not with a view to "institutional scalp hunting". Indeed, he speculated that the need for enforcement against individuals may even decrease under the new Senior Management Regime. We shall have to see.

In relation to the certification regime, Wheatley viewed this as ensuring high standards throughout the firm and with no anomalous exceptions. Interestingly, he was largely dismissive of industry concerns around assessing fitness and propriety without regulatory support (the operation of the certification regime is summarised in this publication, see "Further steps towards the new senior management regime" in this publication). He noted that it would be the exception for the FCA to have intelligence about an individual that a Firm did not already have – indeed he said that an individual's line manager(s) would likely be best placed to assess fitness and propriety and firms would also have regulatory references from previous employers.

Finally, in relation to the Conduct Rules applicable to all but ancillary staff, Mr Wheatley saw these as basic standards known and understood by all, the enforcement of which would largely be handled by the Firms.

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