The Conduct Rules of SM&CR

      Conduct Rules of SM&CR


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      Full video transcript available below:

      Okay, it's a couple of minutes past the hour, so hello everyone, and welcome to today's webinar hosted by me, Stephen Taylor, Chief Commercial Officer at MyComplianceOffice. And Liz Hornby, Principal Learning Consultant at Eukleia. Today's webinar is titled The Senior Managers and Certification Regime: Five Lessons Learned from the Banking Sector.

      Okay, so I said that the last section of the session today, we're going to look a little bit more detail at the conduct rules themselves. So, if we could move on to the next slide, I've got there, I've listed the individual conduct rules that will apply to everyone, senior managers, certified persons, and other conduct rules staff under the new regime. So, you can see that there's the five there. They're quite like the principles for approved persons, although not quite the same.

      So, the first one, we've got acting with integrity. The second one, we've got acting with due skill, care, and diligence. I like to think of those as being two sides of the same coin. So, if someone does something wrong deliberately, or admits doing something deliberately, then that's likely to be an act of showing a lack of integrity. And there are examples within C-CON of the sorts of things that the regulator would include under conduct rule one. Failing deliberately to comply with a firm policy and procedure, for example, is one of the examples that the regulators give. The other side of that coin is acting without due skill, care, and diligence. So, something that you omit to do, not deliberately, but because you don't take adequate care, you haven't been adequately trained, for example, would fall under conduct rule two. So basically, if someone does something wrong, it's likely to be either because it was deliberate or a lack of care.

      The issue that we need to look at there is materiality, and I think, as I mentioned at the beginning of the session, that's one of the major concerns under the regime, is to how you establish whether it's a material breach or not. And it's important for, I think, each firm to reflect on that and decide what level of materiality they're going to set within their organization. It's important that the breach reporting process is independent and that it's consistent across the firm. So, I think best practice is that any potential breach of the conduct rules is reported to whoever it is within your organization who's going to be responsible for the breach reporting process. They make an assessment, as I say, independently and consistently as to whether it's a material breach and whether it's a breach that needs to be for action to be taken by the firm, disciplinary action, and then flowing on from that, obviously the reporting to the regulator and potentially also the regulatory reference.

      But materiality is difficult. I think looking at scenarios within your organization, deciding whether something would be a material breach or not is important. The sorts of things to look at in terms of particularly due skill, care, and diligence and whether something is a conduct rule breach or whether it was just human error, would be looking at is it repeated pattern of behaviour? Is it a one-off incident? Is it something in terms of the person's seniority and experience that they should have been aware of? Those sorts of aspects can be taken into consideration when deciding whether it is a breach or not.

      Individual conduct rule three is being open and cooperative with the regulators, so it's important that individuals are aware that if there is an investigation or if they're asked to attend a meeting, they need to do so, and they're under an obligation to do so, and they must also answer questions openly and honestly.

      Individual conduct rule four is a slight change from the approved persons principles in that there's now an individual obligation to pay due regard to the interests of customers and to treat them fairly. Obviously, this is a, has been for some time, a firm level obligation, but for the first time, it's reflected specifically at an individual level as well. And I think in your training, it's important to note that that not only applies to those people in customer facing roles, but also to those in other roles within the firm. Everybody has a customer at the end of what they do, to some extent, so it's important that everyone feels that that conduct rule speaks to them and is applicable to them.

      And then finally, we've got observing proper standards of market conduct, particularly looking at market abuse and insider dealing there. There is a definition of market conduct within C-CON as to what's caught. But again, it's important that although our focus is specifically on those in market facing roles, again, that applies across the firm to everyone, whichever role they hold.



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