On 15 December 2020, the PRA published a report Evaluation of the Senior Managers and Certification Regime.

The evaluation findings in the report confirm that the introduction of the Senior Managers and Certification Regime (SM&CR) has helped ensure that senior individuals in PRA-regulated firms take greater responsibility for their actions, and has made it easier for both firms and the PRA to hold individuals to account. The report also finds that as with any new regime, there were some upfront implementation costs for firms and regulators, but the work involved in introducing the regime is now bearing fruit and it is being employed in a range of areas to support better prudential outcomes. The report welcomes that a large majority (around 95%) of the firms surveyed said the SM&CR was having a positive effect on individual behaviour.

The report reminds firms that while individual accountability is crucial to good decision-making it does not substitute for the responsibility a firm’s board has for overseeing the firm. Approached correctly, individual and collective accountability are complementary.

The report notes that there are some areas, such as the use of conduct notifications and regulatory references, where it is not yet clear whether the regime is working fully as intended. To progress this, the evaluation identifies nine follow-up actions and recommendations to help refine the way in which the SM&CR operates in practice:

  1. New fitness and propriety requirements are supporting higher professional standards. Alongside these, supervisors are using the regime to clarify responsibility for new business risks and to hold senior individuals to account.
  2. Most senior managers (94%) who participated in the survey observed that the SM&CR had brought about positive changes to behaviours, and nearly all firms reported integrating to some extent the SM&CR with internal practices.
  3. At the same time, the initial nervousness that accompanied the introduction of the SM&CR has reduced as practitioners have become familiar with it.
  4. Executive pay is being adjusted in response to adverse events and new PRA rules on remuneration, although the additive effect of the SM&CR is unclear. However, conduct notifications are being used to a limited extent only.
  5. Concerns have been expressed that risk aversion might prompt some firms to appoint senior managers with similar profiles to existing executives. It is important to affirm the PRA’s commitment to ensure the SM&CR does not impede steps by firms to improve diversity of skills, experience and backgrounds among their senior management, and to dispel any misconception that the Senior Managers Regime favours simple ‘replication’.
  6. Most stakeholders saw individual accountability and board responsibility as complementary, and the PRA should continue to promote these in ways that are mutually reinforcing.
  7. The SM&CR has been successfully implemented across different business models. Most respondents believed that the regime is proportionate. However, medium-sized and smaller firms held this view less strongly. The PRA would welcome further feedback on options for enhancing proportionality.
  8. Approving senior managers on a time-limited and conditional basis has been used much less than envisaged, and options to support the more flexible use of these tools should be examined.

While the PRA has issued guidance on senior management responsibilities to mitigate new risks (such as those presented by algorithmic trading and crypto assets), there are advantages in applying the existing set of Senior Management Function responsibilities wherever possible to limit the growth of new expectations