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Enforcing Senior Managers and Certificatoin Regime

Enforcing Senior Managers and Certification Regime




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Full video transcript available below:

Welcome and thank you for joining today's webinar hosted by me, Joe Boyhan of MyComplianceOffice, and Gregory Brandman and Simon Collins of Eversheds Sutherland.

If these things have been demanding, I'm sure having a very brief touch on enforcement is also something to consider, and I'm going to hand back to Greg. If we can have the next slide, please.

Again, we pretty covered this ground already, but just by way of wrap-up, this next slide, really sift out the differing approaches that the regulators will take to enforcing the new conduct rules. It just essentially describes which roles FCA will enforce and against two [inaudible 00:44:55] will enforce. Again, as you would expect, the FCA is rather more focused on conduct issues and the PRI in terms of the community of individuals that they jointly regulate are rather more focused on managerial issues.

We think we can move on actually hopefully to the slide after that. I think we're still running a couple behind. Again, just to recap on personal culpability. As I said, thanks. We're up-to-date again now.

As I've said before, the tests around personal culpability very much remains one of reasonableness, so to breech a conduct rule, the regulator will have to demonstrate [inaudible 00:45:40] proof is on them to demonstrate it if you fail to act reasonably in all the circumstances.

Just a footnote there, that final bullet there's an additional duty of responsibility that's recently come into force with senior managers currently within the regime, and that essentially is a statuary duty of responsibilities which will appoint circumstances where there's been a contravention of a requirement, i.e, a role breech or a breech of the FISMA Act within an area of business which the senior manager is responsible.

If that senior manager has not taken reasonable steps to avoid that contravention according or continuing, that will be a breech of his or her duty of responsibility. Again, the burden of proof will remain on the regulators to demonstrate that the individual senior manager failed to take reasonable steps to avoid the contravention occurring or continuing, so the test again, one of reasonableness. It does provide a technically, a further ground of action against senior managers, but it's a very new duty and it came into force a few months ago. It remains to be seen how it will be used in practice by the regulators whether it will be used at all.

Frankly, my end view is that he doesn't really add very much at all to the existing grounds of action under the conduct rules taking action again senior managers. It will be interesting to see to what extent that's used against senior managers by the regulators in the future. Next slide, please.

A way of wrap-up from me, do senior managers need to be worried? In short, yes about not so much should keep them awake at night. Originally, the proposal was to infuse a presumption of responsibility, reversing the burden of proof on senior managers to prove to themselves that they had actually had a reason. That's been ditched as I've said. The burden of proof for establishing this conduct either for the breech of the conduct rules, or for breech of this new duty responsibility, remains on the regulator, and the test remains one of reasonableness.

We're really back to where we were before and where we currently are under APER, but the reality isn't. This is the word of warning, that FCA is now taking far more enforcement action against individuals and against institutions, and it's now very much the default setting for regulators when they open an investigation into the firm, also at the same time, to open an investigation into the senior manager, or senior managers, responsible for the area of the business where the concerns giving rights to the enforcement action against the firm have their reasons. It's absolutely a requirement now for the regulators to investigate senior manager responsibility where they're investigating the firm.

In fact, internally within the enforcement division, a memo has to be sent justifying why an investigation is not also being opened into a senior manager where they're investigating the firm. That gives you a flavor of where the FCA's company coming from in that regard. That's really all I was going to say. I just want to hand it over to Simon to talk through the last slide, which is really our next steps in getting prepared for the new regime.

 
 
 
 

The next step, getting prepared and lessons learned. I think from our experience, firms do need to start as early as practicable. From that we mean don't necessarily wait for the consultation to land. Begin to start forming your project teams, as many of you seem to doing. Start undertaking some awareness and trainings, particularly to senior managers. If there's something that we've seen as the major challenge here is getting that communication right to the senior manager, giving them sufficient time to understand what they are electing themselves in for and how they are going to deal with the responsibilities and the clarity, shall we say, the responsibilities and the fact that those responsibility maps and their own personal statements of responsibility will be lodged with the regulators.

We've tended to suggest firms starting six to nine months ahead. A little bit difficult when you don't know when the implementation's going to be. There was talk of March 2018. I think it is likely that that will be pushed back somewhat, but don't bet on it being pushed back too far. I think from where the regulator sits is, they will say there's an awful a lot of information that is available. The regime will be a proportionate regime for the extended perspective; however, a lot of the core components will be remaining the same.

Keep things as simple as possible. No need to over engineer and ensure that everyone is involved. This is an interesting regime. It impacts everybody, so ensuring that everybody is actually involved is important. You may get some degree of [inaudible 00:51:50]. We've seen some nets decide to retire early as a result of this. We've seen some instances where some individuals have felt that signing up for something that hadn't appreciated and they demand salary rises, so there is some interesting dynamics that come into play.

That concludes what we wish to say.

 

This webinar was co-hosted with Eversheds-Sutherland

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