The FCA has published a speech given by Mark Steward (Director of Enforcement and Market Oversight, FCA) entitled The expanding scope of individual accountability for corporate misconduct.

In this speech Mr Steward discusses the senior managers’ regime (SMR) noting that it provides more than a legal framework and helps align the responsibilities of key senior managers to those that are owed by the firm more generally to the whole community.

Mr Steward makes four practical observations about the SMR:

  • the duty of responsibility does not create a separate and independent basis for senior management liability. A senior manager’s liability, under the duty of responsibility, depends on the firm’s wrongdoing because it is, in essence, a duty to act reasonably as a manager to prevent the firm from contravening a relevant requirement. This means any action involving the duty of responsibility will give rise to a need to consider whether action needs to be taken against the firm as well as against the senior manager;
  • a senior manager is not liable just because the firm has breached a requirement. The senior manager’s liability arises because he or she has failed to take reasonable steps to prevent the firm from being in breach and the firm is in breach;
  • the requirement to prove a failure to take reasonable steps will no doubt invite arguments that the management failure must have caused the firm to be in breach. Mr Steward can also see an argument the other way, the relevant breach by the senior manager must be one where it can be said the management failure is a factor in the corporate breach; and
  • the relevant duty applies not only to acts but also to omissions. A failure to act, which may include a failure to know what a senior manager ought reasonably to be cognisant of, may be enough to constitute a breach.

Mr Steward also disagrees with the view that the SMR is a means of shifting corporate liability onto individuals. He states that this is not the case, so far as the duty of responsibility imposed on senior management is concerned, because the firm’s liability is a jurisdictional fact in any action against an individual. He warns that there is “no free pass” and the SMR does not mean that there will be an end to action against firms, including heavy financial penalties.

View The expanding scope of individual accountability for corporate misconduct, 3 April 2017