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UK Financial Institutions: Proposals For New Senior Managers And Certification Regimes

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With a mandate from Parliament, the UK regulators are working on a new regime governing individuals in banks.

The UK Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) published a joint consultation paper (the Joint Paper)1 in July 2014 with the aim to increase the standards of personal accountability and strengthen the regulation of individuals who work in banks, building societies, credit unions, and PRA-designated investment firms.

The proposals encompass a new senior managers regime for directors and other senior individuals and a certification regime for more junior employees. Alongside these changes will sit new conduct rules issued by both the FCA and PRA that will regulate individuals' behaviour. These two regimes will replace the current approved persons regime and current statements of principle and code of practice for approved persons.

The proposals build on recommendations made by the Parliamentary Commission on Banking Standards (PCBS)2 in its report Changing Banking for Good published in June 2013. In short, PCBS found that under the current regime, there was little prospect of effective enforcement against individuals, mainly because too narrow a range of individuals were covered and responsibilities were not in practice attributed to individuals. The Financial Services (Banking Reform) Act 2013 (the Act) contains the framework for the new regime, which will apply to the following:

UK-incorporated banks, building societies, and credit unions UK-incorporated and PRA-designated investment firms (collectively, banks) On 17 November 2014, HM Treasury, in exercise of its powers under the Act, issued its own consultation in the area aimed at widening the scope of the new regime to capture personnel within UK branches of overseas banks.

Senior Managers Regime

The Joint Paper proposes a new approval regime for senior managers whose actions and decisions would have a significant impact on the banking sector and customers. This will include the bank's board of directors; executive committee members (or equivalent); heads of key business areas that satisfy certain criteria; individuals who are responsible for important business-, control-, or conduct-focused functions within the bank; and those individuals employed by a group or parent company who exert significant influence over the bank's decision making.

Individuals who perform a senior management function specified by PRA would require pre-approval by...

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