United Kingdom (and EU regulation)

Joint FCA and PRA Consultation Paper on applying senior managers’ and certification regimes to UK branches of foreign banks

On 3 March 2015, HM Treasury announced that it would apply the senior managers’ and certification regimes to all firms, including to UK branches of foreign banks.

The FCA and PRA have now published a joint Consultation Paper 15/10: Strengthening accountability in banking: UK branches of foreign banks (CP15/10).

In CP15/10 the PRA and FCA set out their proposals to apply the senior managers’ regime, certification regime and new conduct rules to incoming branches of foreign banks. Key proposals include:

in an earlier consultation the PRA proposes to require all incoming non-EEA branches to have at least one individual pre-approved as a Head of Overseas Branch senior manager. This person will typically be performing activities akin to those of a CEO in relation to the branch. In addition: (i) if another individual, who may be based in another UK group entity, has direct management and/or decision-making responsibility over the incoming non-EEA branch’s UK regulated activities, the PRA’s rules will require this individual to be pre-approved as a Group Entity Senior Manager of the branch in addition to the Head of Overseas Branch; and (ii) if an incoming non-EEA branch has dedicated individuals performing certain executive senior management functions (i.e. chief finance, chief risk and head of internal audit functions) the PRA will require them to be approved. The PRA expects this to be the case in large, complex branches;
the FCA proposes to apply a new senior management function to incoming non-EEA branches, the Overseas Branch Senior Manager function. This role will capture the senior individuals (other than the Head of Overseas Branch) with local responsibility for a business area, activity or management function of the branch and who will typically report to the Head of Overseas Branch;
the FCA will require incoming non-EEA branches to appoint a senior manager to the senior manager functions of Money Laundering Reporting Officer (MLRO) and Compliance Oversight;
non-executive director functions will not be brought into the scope of the senior managers’ regime for incoming branches;
the PRA and FCA proposes to introduce a customised set of prescribed responsibilities for incoming non-EEA branches;
whilst the PRA is not proposing any requirements for incoming EEA branches the FCA will require such branches to appoint a senior manager to the MLRO function. In addition, the FCA proposes to apply an “EEA Branch Senior Manager” function to capture the individual(s) responsible for the management and conduct of the business of the incoming branch;
the PRA will align the scope of its certification regime for non-EEA branches and will base the definition of a “certification function” on the definition of a material risk taker;
the FCA proposes to align the scope of its certification regime for both non-EEA and EEA branches with that for UK firms, where this is applicable under EU legislation for EEA branches; and
for non-EEA branches the PRA will apply all of its new conduct rules to persons performing a senior management function which is specified by itself or the FCA. The PRA will also apply a narrower set of individual conduct rules to employees in incoming branches within the PRA’s certification regime. For both non-EEA and EEA branches, the FCA will apply its new conduct rules to individuals within its senior managers’ regime, certification regime and all other employees other than ancillary staff whose role is not specific to the financial services business of the firm. This mirrors its approach to UK firms.

The deadline for comments CP15/10 is 25 May 2015.

View CP FCA15/10 / PRA9/15: Strengthening accountability in banking: UK branches of foreign banks, 16 March 2015