In Enforcement Watch 21, we discussed the Consultation Papers that the FCA and PRA had published in relation to how Senior Managers might discharge the "Duty of Responsibility". The FCA and PRA have now separately each published their final guidance (on 8 May and 12 May respectively). These are now in force.
As a reminder for readers, the Duty of Responsibility is a creation of statute (s.66A(5) of FSMA) and has been in force since 10 May 2016. It forms part of the wider reform brought about by the Senior Managers and Certification Regime. In summary, the Duty requires a Senior Manager to have taken "reasonable steps" where there has been a breach of a regulatory requirement by the Manager's firm in an area for which that Manager had responsibility. As we noted in Enforcement Watch 21, the FCA and PRA have been keen to stress that compliance with this guidance will not operate as a "safe harbour". However, it will clearly form an important backdrop to future enforcement cases against Senior Managers. Also it may to some extent constitute a starting point for Senior Managers wanting to understand how they can ensure that their day-to-day practices best insulate them against regulatory action.
The guidance that has been published does not differ substantively from that which was consulted upon, and there was only very limited feedback. Respondents to the FCA consultation apparently acknowledged the likelihood of more action against senior individuals, particularly in larger more complex firms. That is plainly right. The purpose of the Duty was to give the regulators a pathway to bringing such actions against individuals (where appropriate).
In its response, the FCA notes that respondents also acknowledged that when applying the Duty, the FCA may need to look beyond the Statement of Responsibilities and Responsibilities Map. This is an important point for Senior Managers, who will not only be subject to the Duty in respect of those areas they have signed up for, but also areas that they manage in practice. Senior Managers will therefore have to take considerable care not to allow their responsibilities to drift, or if they do drift, then it will be key for them to ensure that the systems, controls and management information is adequate for what they are doing in practice.
As to whether the Duty will indeed result in an increase of cases against senior individuals, we will have to wait and see. The FCA has disclosed, pursuant to a Freedom of Information Act, that between March 2016 (when the SMCR was introduced) and February 2017, it brought cases against two Senior Managers. These, however, are early days and it will likely take some period before we start to see more cases coming through.