FCA rule changes remove need for firms to report breaches

Firms will no longer be required to report known and suspected breaches of Rules of Conduct to the FCA.

Under the new rules, the 'presumption of responsibility' has been removed which required banking sector firms to report all known or suspected breaches of rules of conduct by employees. Instead, a statutory duty of responsibility will be created, whereby senior managers can only be found guilty of misconduct if they did not take steps that could 'reasonably have been expected' to avoid a breach.

The FCA said that the old rules were potentially a very costly obligation for firms, especially larger firms which employ large numbers of staff, as they have to put in place detailed systems and controls to ensure compliance.

Speaking in October, Tracey McDermott, acting chief executive of the FCA, said:

"Extending the Senior Managers’ and Certification Regime is an important step in embedding a culture of personal responsibility throughout the financial services industry.

"While the presumption of responsibility could have been helpful, it was never a panacea. There has been significant industry focus on this one, small element of the reforms, which risked distracting senior management within firms from implementing both the letter and spirit of the regime. The senior managers' and certification regime is intended to deliver better decisions to help avoid problems arising. We remain committed to holding individuals to account where they fail to meet our standards."

The updated Senior Managers & Certification Regime enters into force for relevant persons on 7 March 2016. It was recently extended to all financial services firms including insurers, investment firms, asset managers, insurance and mortgage brokers and consumer credit firms.

The new policy requires firms to submit "robust documentation" on the scope of senior managements' responsibilities and introduces a statutory requirement for senior managers to take "reasonable steps" to prevent regulatory breaches in their areas of responsibility.

Firms will also be required to certify as 'fit and proper' any individual who performs a function that could cause significant harm to the firm or its customers, both on recruitment and annually thereafter.

In a consultation paper released today, the FCA said that the result would be 'streamlined reporting requirements so that the forms only require firms to inform us of disciplinary action taken against staff as a result of a breach of one or more Rules of Conduct'.

It added:

"We do not believe that the proposals will weaken consumer protection. The FCA Rules of Conduct also provide clear incentives for individuals to maintain appropriate standards of behaviour in their dealings with customers and their activities in the UK market. Therefore the proposals should not affect existing consumer protections."

The FCA has now opened a consultation on the proposed changes and is seeking feedback from firms.