The Senior Managers Regime (SMR) aims, simply, to clearly assign responsibility and accountability to those in positions that directly affect the success, or indeed failure, of organisations in the banking sector.
It is designed to encourage individual accountability for decision-making in banks, building societies, credit unions and Prudential Regulation Authority (PRA) designated investment firms. As of last week, the SMR now also applies to asset managers, hedge fund managers and the Bank of England itself, after Mark Carney's speech (governor of The Bank of England) extended the regime in a bid to end ‘the age of irresponsibility’.
The Senior Managers Regime (SMR) aims to combat the failings of the Approved Persons Regime (APER), which saw scandals such as the mis-selling of PPI and the rigging of Libor and foreign exchange rates cost top banks billions of pounds in fines.
The SMR aims to create a ‘culture of accountability’ by introducing precautionary, precise and punishable measures. It will apply to persons in Senior Management Functions (SMFs) from CEOs to non-executive board members, and the Code of Conduct will now cover all staff working within financial firms, with the exclusion of ancillary staff. Those who attempt to swindle the system will receive longer prison sentences (10 years, aligning with other fraud offences), and will also be held accountable for the actions of those they are responsible for, with bans or fines being distributed if senior managers cannot prove that they took responsible steps to prevent misconduct. No pressure then.
The requirements of the SMR will lead to changes across numerous processes and systems to ensure that senior managers can illustrate how ethical and responsible precautions have been taken to prevent the occurrence of contraventions. Processes include, but are not limited to, HR, recruitment and appraisal, compliance systems for monitoring and tracking of conduct breaches, and training requirements. Identifying, coordinating and implementing these changes will be a significant task.
Developments:
- The Senior Managers Regime now applies to all bank workers, asset managers, hedge fund managers and interdealer brokers, as well as thousands in the fixed income, commodity and currency markets, leaving little room for error – essentially the point of the SMR.
- Prison sentences for market abuse will match other fraud penalties and increase from seven to 10 years.
- The BoE is in the process of creating a new statutory civil and criminal market abuse regime to prevent future foreign exchange rigging.
- "To address areas of uncertainty in trading practices and promote adherence to standards" a fixed income, commodities and currencies Market Standards Board will also be created.
- Finance workers moving jobs will require a reference from their previous employer, helping to ensure those who break the rules are caught out.
Following this, Carney said that "all the main building blocks are now in place for the real markets we need." Others disagree; law firm Herbert Smith has said that there is an ‘enormous risk’ of the SMR failing. But it seems all we can do now is wait, watch and not step a toe out of line.
