Proposal to extend Senior Managers and Certification Regime means major changes for HR teams of all financial services firms

United Kingdom

Just months before the new banking accountability regime is due to come into force on 7th March 2016 the Government has announced key changes to it.  It has also announced a proposal to extend the regime to all firms in the financial services sector, including insurers, investment firms, asset managers, insurance and mortgage brokers and consumer credit firms.  The Government’s intention is that implementation of the newly extended regime should come into operation during 2018.

One of the most contentious elements of the new banking regime was the reverse burden of proof which had raised concerns about personal liability for senior managers.  Late in the day the Government has decided to scrap this in favour of a statutory duty on senior managers to take reasonable steps to prevent regulatory breaches in their area of responsibility. The burden of proof for establishing misconduct will now rest on the regulators as it does under the current approved persons regime.  The Government states that the reason for taking this approach is to ensure a fairer, more consistent and rigorous regime for all financial services firms.  Another key change is that a provision (to be introduced into the Financial Services and Markets Act 2000 by the 2013 Act) that would require banking sector firms to report all known or suspected breaches of rules of conduct by any employees subject to those rules to the regulator, will no longer come into force from 7 March 2016.  This is on the basis that the regulators can ensure that they are notified of any information about employee misconduct in a more proportionate way in their rules.  Further information on the details of the new regime can be found on our regzone site which focuses on European financial services regulation.  You can access the site here

Many of the ‘business as usual’ processes that will support the new regime will fall to the HR team as the people managers within a firm.  This will involve notifying and educating employees about how the new regime applies to them and embedding new behaviours to respond to the requirements of the regime.

It is therefore essential that relevant HR policies, procedures and processes, as well as record keeping arrangements are reviewed to ensure that firms are ready to be able to respond to the new requirements.  The new regime will have an impact on HR processes throughout the lifespan of the employment relationship, affecting nearly all staff members.  The impact will be felt in: recruitment, such as obtaining references, criminal records checks, preparing statements of responsibilities; on-going HR processes, such as adaptation of appraisal processes to certify as fit and proper those within the senior managers and certification regime, disciplinary processes and training for staff on the Conduct Rules; and termination and handover arrangements including provision of references and succession planning. 

Firms should also take this opportunity to ensure that contracts of employment are fit for purpose in the context of the new regime and that they provide the firm with the flexibility and control needed to ensure both compliance with the new regime and effective business management.

It is anticipated that in line with this recent change in direction by the Government that recent proposals concerning regulatory references and new rules concerning whistleblowing arrangements may also be extended to all firms in the financial services sector.  Further information on these can be found in our recent law-now which can be found here.

It has been a busy time for those in the HR teams of banks with plenty to do before the regime comes into force early next year and the new whistleblowing rules take effect in September 2016.  For the wider financial services sector the journey in relation to the senior managers and certification regime is just beginning.  The CMS employment team has been working with HR teams within a number of banks to help them to prepare for the new regime.  If you would like assistance with HR and employment law impact on your organisation please contact a member of our employment team.