Proposed framework
The current SM&CR would be modified to recognise that FMIs are not “authorised persons” for the purposes of the Financial Services and Markets Act 2000. The BoE would implement, supervise, and enforce the following:
1. A senior managers regime (“SMR”)
The BoE would have the power to determine whether individuals who perform roles that pose a potential risk to financial stability or to the continuing functioning of the FMI have the appropriate competence, expertise, and probity to carry out their roles.
FMIs would be required to submit documentation to the BoE on the scope of these individuals’ responsibilities. Importantly, the SMR would establish a statutory requirement for senior managers to take reasonable steps to prevent or stop regulatory breaches in their areas of responsibility.
2. A certification regime
FMIs would be required to certify any individual who performs a “specified function” that could cause significant harm to the FMI or its users, as fit and proper, both on recruitment and then annually. FMIs would be required to consider a person’s qualifications, training, level of competence and personal characteristics. These individuals would not need to be approved by the BoE.
The definition of employee would be wide and could include contractors and secondees and will be determined by the BoE following public consultation.
3. Conduct rules
These rules would be made where necessary or expedient for advancing the BoE’s financial stability objective and would apply to all employees and set minimum, high-level requirements regarding the conduct of individuals.
Other
The BoE would have the power to make, vary or revoke prohibition orders against individuals. It could use its power to prevent the individual from carrying out any function that would involve the individual in the performance of a regulated activity or an activity carried out by an FMI.
In addition, the BoE would have disciplinary powers in relation to FMI employees including the power to:
- impose penalties where an individual performs a SMF without approval; and
- take action for misconduct such as failing to comply with a conduct rule or when a senior manager knowingly breached a regulatory requirement or failed to take reasonable steps to stop the FMI from doing so.
The BoE can impose financial penalties, suspend, impose conditions on, or limit the period for, an approval to carry out a SMF and/or publish a statement of the person’s misconduct.
Next steps
The government welcomes views until 22 October 2021. HM Treasury plans to legislate for the new regime when parliamentary time allows.
Article co-authored by Anna Burdzy.
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