FCA: Senior Managers Regime is "no free pass for firms"

Speaking at the New York University, Steward said the regime "marks an important and decisive shift" in tackling conduct issues but warned that "there is no free pass for firms".

The regime applies the notion of a 'duty of responsibility' - that senior managers have obligations to act reasonably to prevent misconduct by the firm from occurring.

However some have viewed it as a means of shifting corporate liability onto individuals. "This is not the case", Steward said, "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".

Steward continued: "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 consider whether action needs to be taken against the firm as well as against the senior manager.

"Secondly, 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."

Steward stressed that the regime is not intended to make senior managers "vicariously or strictly liable" for misconduct that occurs within or by the firm. "The senior manager is not a proxy or a scapegoat for the firm or anyone else", he added, highlighting that the regime is supported by conduct rules that apply to all staff in the firm.

Discussing continued action against firms, Steward said that financial penalties "are not the sole means of holding firms to account".

He explained: "One of the challenges of conduct regulation is to recognise squarely that not all misconduct can be prevented so we need better ways to detect, get to the bottom of and, in this context, to regulate its remediation. In addition to appropriate sanctions, remediation here includes looking back and identifying properly the consequences of misconduct and making sure there is just reparation for the harm and damage caused to third parties, as far as can be practically achieved within the scope of our powers and functions.

"The overriding purpose of the regime is to improve genuine accountability in firms by removing ambiguous or bureaucratic structures that have impeded or obfuscated clear lines of responsibility."