United Kingdom (and EU regulation)

Applying conduct rules to all NEDs in the banking and insurance sectors

By Charlotte Henry on May 4, 2017 Posted in Regulation and compliance, United Kingdom

In September 2016 the FCA published Consultation Paper 16/27: Applying our conduct rules to all non-executive directors in the banking and insurance sectors (CP16/27). In CP16/27 the FCA proposed to extend the application of the Code of Conduct sourcebook (COCON) to standard non-executive directors (standard NEDs) in banks, building societies, credit unions and dual-regulated investment firms and insurance firms (Solvency II firms).

The FCA proposed:

that standard NEDs would be subject to the Individual Conduct Rules set out in COCON 2.1 and to Senior Conduct Rule 4 requiring individuals to ‘disclose appropriately any information of which the FCA or PRA would reasonably expect notice’;
that Senior Conduct Rules 1, 2 and 3 would not apply to a standard NED unless, as well as being a standard NED, they were also a ‘senior conduct rules staff member’ (as defined in the FCA Glossary);
to introduce additional guidance to Individual Conduct Rule 2 to clarify that this rule applies to a director (whether executive or non-executive) when acting as a member of the board or other governing body or of its committees;
to extend to insurance firms the scope of the guidance to COCON 1 (Annex 1) on the role and responsibilities of NEDs; and
to amend the form firms use to report breaches to the FCA, to allow it to recognise which of the breaches relate to standard NEDs in banks.

The FCA has now published Policy Statement 17/8: Applying our conduct rules to non-executive directors in the banking and insurance sectors (PS17/8). In PS17/8 the FCA sets out its final rules extending the application of COCON to standard NEDs. The FCA reports in PS17/8 that it has not made changes to the draft rules it consulted on in CP16/27.

The new rules set out in PS17/8 come into force on 3 July 2017. Firms will need to ensure that standard NEDs receive appropriate training on COCON and how it applies to them. Firms affected by the changes will also need to report to the FCA any breaches by standard NEDs resulting in disciplinary action. For the first reporting period, the notification must cover breaches occurring between 3 July 2017 and the last day of August 2017. This must be submitted to the FCA within 2 months of the end of the reporting period. Insurers will still be subject to reporting requirements in SUP 15.3.11R(1) and must notify the FCA in line with SUP 15.7.

View Applying conduct rules to all non-executive directors in the banking and insurance sectors: PS17/8, 3 May 2017