Strengthening individual accountability in banking: responses to CP14/14, CP28/14 and CP7/15

The PRA has published Policy Statement 16/15: Strengthening individual accountability in banking: responses to CP14/14, CP28/14 and CP7/15 (PS16/15).

In PS16/15 the PRA provides feedback on those aspects of Consultation Paper 14/14: Strengthening individual accountability in banking: a new regulatory framework for individuals (CP14/14) which were not dealt with in Policy Statement 3/15: Strengthening individual accountability in banking and insurance – responses to CP14/14 and CP26/14 (PS3/15). It also provides feedback on responses to the proposals in Consultation Paper 28/14: Strengthening individual accountability in banking: forms, consequentials and transitional aspects (CP28/14) and the proposals relating to banking (not insurance) firms in Consultation Paper 7/15: Approach to non-executive directors in banking and Solvency II firms & Application of the presumption of responsibility to senior managers in banking firms (CP7/15).

Appendix 1 to PS16/15 contains a set of final PRA rules (further to those published in PS3/15) to implement the senior managers regime (SMR) and certification regime for UK banks, building societies, credit unions and PRA-designated investment firms.

Key points in PS16/15 include:

the PRA has not made any changes to the content or scope of the conduct rules proposed in CP14/14;
CP14/14 contained a draft statement of policy setting out how the PRA intends to use its new powers to impose conditions, time limits and variations on approvals to perform a senior management function. The PRA is proceeding with its original proposals;
in relation to CP28/14 the PRA has not made any significant changes to its proposed approach to transitional arrangements, but clarifies some aspects to address certain queries raised and makes certain amendments to ensure that the PRA transitional rules are consistent with the HM Treasury Transitional Order which was made on 4 March 2015;
that a number of respondents asked the PRA to confirm that where individuals are taking on new responsibilities as a result of the SMR, including PRA Prescribed Responsibilities, this would not affect their eligibility for grandfathering provided that they continue performing the same role. The PRA confirms that the allocation of new responsibilities to an individual will not, in itself, make them ineligible for grandfathering. The PRA recognises that, as a result of the new regime, some individuals may take on new responsibilities (or become formally responsible for areas they are already responsible for in practice). The PRA may, however, question the allocation of certain responsibilities to a particular senior manager where they appear to be inconsistent with the overall nature and responsibilities of that function. However, if an individual is taking on new responsibilities that will involve them performing a senior management function he or she is approved to perform prior to commencement, he or she will not be eligible for grandfathering in respect of that new senior management function;
the PRA believes that the suggested 300-word limit on the amount of free text that firms can use on a statement of responsibilities should generally be sufficient and emphasises that such statements are primarily about recording what a senior manager is responsible for, and less about how they will deliver those responsibilities;
the PRA has decided to continue with the seven business days period for notification of a breach or suspected breach of the conduct rules by a PRA-certified employee;
in relation to CP7/15 the PRA has not significantly changed its proposed approach to non-executive directors (NEDs) in the SMR, although it has made some changes which were suggested by respondents and has incorporated these into the final version of Supervisory Statement 28/15 (SS28/15);
whilst SS28/15 clarifies that the SMR will only apply to some NEDs who will be required to take on a limited number of tailored individual responsibilities, the PRA views the regime and its application as consistent with the principle of collective decision-making underpinning unitary boards. The individual accountability of directors in scope of the SMR will be additional and complementary to the collective responsibilities shared by all directors under UK company law and well-established corporate governance principles. Also, regardless that some NEDs will be subject to enhanced individual accountability to the PRA and FCA under the SMR, the PRA considers it vital that boards as a whole understand the Threshold Conditions, Fundamental Rules and more detailed underlying rules in the PRA Rulebook, and establish within their firms a culture that supports adherence to the spirit and letter of these requirements; and
the PRA has updated the requirements proposed in CP7/15 that a firm must require all members of its management body to observe individual conduct rules 1-3 and senior management conduct rule 4 so that this is a contractual requirement: that is to say that a firm should be able to enforce these standards. A firm could for instance write a requirement into its staff handbook or code or otherwise make it a condition of employment or appointment. As contracts normally expressly allow for any amendments necessary to meet regulatory requirements the PRA believes that this provision should not be onerous.

There is also published:

SS28/15, which sets out the PRA’s expectations of firms in relation to the new regimes. This combines the draft Supervisory Statements consulted on in CP14/14 and CP7/15 and, where appropriate, updates them to take account of feedback to the consultations and/or the PRA’s final rules and policy; and
a final Statement of Policy on the PRA’s use of the power to impose conditions and time limits on an approval to perform a senior management function.

PS16/15 does not contain further substantive rules on the regulatory references to be issued by a current or former employer when a new firm is considering appointing a person to a senior manager or certified role (other than to extend the basic requirement to require a reference from former employers issued in PS3/15 to also cover former NED roles).

The PRA plans to issue a further Policy Statement that will provide feedback on responses to Consultation Paper 9/15: Strengthening accountability in banking: UK branches of foreign banks and include final and near-final rules on the application of the new regimes to UK branches of non-EEA firms later in 2015. The Policy Statement will include an updated version of SS28/15 which sets out the PRA’s expectations of how incoming branches should comply with the new regimes.

View Strengthening individual accountability in banking: responses to CP14/14, CP28/14 and CP7/15, 7 July 2015

United Kingdom (and EU regulation)