SMR: Future implications of the demise of the reversal of the burden of proof

Posted on 27 January 2016

SMR: Future implications of the demise of the reversal of the burden of proof

Etched into the consciousness of the whole banking community and many others, the SMR proper is coming into force in March 2016. 

One of the very controversial aspects of the legislation had been what was known as the "Reversal of the Burden of Proof" ("RoBoP").  The legislation effectively set out that where a contravention had occurred in an area for which a Senior Manager in a relevant Firm had management responsibility, the burden of proof reversed in enforcement proceedings - the Senior Manager was to be treated as guilty, unless he could prove that he was innocent.  This ran counter to traditional legal notions of innocence and caused a great deal of concern within the regulated community, especially those within the scope of the SMR.

In Autumn last year, even before the provision was due to come into force, in a rather unexpected turn of events, the Government announced that it proposed to abandon RoBoP. It proposed to replace it with a statutory duty of responsibility, where there was no reverse burden of proof.  This was met with a great deal of relief.  We are currently awaiting the final passing of the legislation.

Having said all of this, our view has always been that the concern about RoBoP was somewhat misplaced.  It was perfectly understandable that Senior Managers would have an instinctive negative reaction to it. Indeed, it was also quite possible that regulators may have felt emboldened by RoBoP and more inclined to bring relevant cases. However, our view was that, in reality, in a properly contested claim, RoBoP was unlikely to have produced a different result than would have been the case without it.

With RoBoP now apparently dead, Senior Managers appear to be more optimistic about their positions in the new world order.  Our view is that they should not consider themselves really in any different position to the position they were in when RoBoP was still the order of the day. Whether RoBoP or a duty of responsibility, Senior Managers will still have the same responsibilities and there is unlikely to be any real difference in how they should conduct themselves. What is more interesting for enforcement watchers is that the SMR will certainly make it considerably easier to bring a misconduct action against Senior Managers than previously, and we expect in years to come to see Senior Manager enforcement actions playing out.