Commentary by Ronald Gould, European Chairman, ComplySci, Ltd.

 

Lets go on a bit of time travel – it’s June 2018 and the UK Senior Managers Regime now applies to all financial sector firms, large and small – that’s over 35,000 by the way.  Many thousands of senior managers are working through the complex and delicate process of designing and agreeing a clear map of their responsibilities, something that they will then sign.  The signature will represent a binding commitment to accept those responsibilities and suffer the consequences PERSONALLY if things go wrong on their map – and that could include criminal penalties. There is only one “get out of jail” card under the Regime for senior managers – the ability to prove that they took “reasonable steps” to avoid the problem.  ComplySci is a perfect example of just such a “reasonable step”.  It makes possible clear evidence that a firm has taken reasonable steps to monitor and control a range of potential employee risks.  The argument for us is compelling and every financial executive should know it.  But today, back from our time travel, we know that this linkage is only dimly perceived.  That needs to change.  These sanctions already apply to senior managers in banks, insurance firms and PRA regulated investment managers.  But have they joined the dots yet?  The evidence suggests there are big gaps that represent potentially massive amounts of personal risk for senior managers.   We need to make sure that firms understand these risks and how we can help them close them off.

What’s happening & how will it work?

SMR came into force in March 2016 but responsibility maps must only have been agreed since September and the Certifications deadline is March 2017 .  This delay may be one reason that firms have been slow to focus on just what their personal risk position looks like.  However, that is now becoming more clear and the FCA/PRA have had time to describe more how they intend to use the SMR.  Regulators will be linking handbook rule violations with SMR responsibilities.  So if your responsibilities map includes, for example:

  • The way conflicts of interest are managed
  • The way market abuse issues are managed and controlled
  • The way in which your firm is able to evidence how it controls failures

Then you have a big, personal stake in insuring that your firm is seen to have taken all “reasonable steps” in dealing with these exposures.  If that cannot be shown, your personal risk is not just limited to financial penalties but includes criminal sanctions as well.  So now is the time to review your firm’s ability (and yours as well) to prove that is has taken all “reasonable steps”.  Waiting until 2018 for those not already covered by SMR is running risks best to be avoided.  After all, it takes time to implement new tools for managing your exposure.

 


About the Author:

Ronald Gould is European Chairman of ComplySci and is leading the firm’s UK/Europe operations. He is a strategic consultant in the financial services sector with extensive experience in both Europe and Asia. He is also Chairman of Think Alliance Group in Hong Kong, Chairman of OneRe Insurance and the Senior Independent Director of JP Morgan Asia PLC.

Mr. Gould was Senior Advisor at the Financial Services Authority (now the Financial Conduct Authority). Over the years of the global financial crisis at the FSA, Mr. Gould played an important role in the re-structuring of financial institutions and the supervision of complex investment organisations. He is former Chief Executive Officer/founder of ABG Sundal Collier ASA (“ABGSC”), a listed specialist Nordic investment bank with activities in investment research, securities trading, corporate finance and asset management