13 June 2018
The FCA has published its response to the Parliamentary Commission on Banking Standards (PCBS) report of June 2013 with the majority of the recommendations made to be taken forward.
The Commission's report made over 100 recommendations, of which 58 relate specifically to the FCA. The FCA describes in its response how it intends to implement the 4 key themes of the report:
- holding individuals to account,
- governance and culture,
- securing better outcomes for consumers and
- regulatory judgment.
The FCA supports the Commission's recommendations for the creation of a Senior Persons Regime, but states that details of the regime wll require further analysis and consultation and it will consider whether aspects of the Senior Persons regime should be incorporated into the existing Approved Persons Framework.
The FCA has confirmed that it will continue to require individuals make attestations that remedial actions have been completed or that other controls are fit for purpose and this individual attestation will be a key part of their approach to Senior Persons. The FCA's approach will be judgment-based; will vary according to the scope of an individual's responsibilities; and will be proportionate to the risks posed to consumers and the integrity of the financial markets.
In addition to the Senior Persons regime, the FCA supports the recommendation for licensing arrangements based on a set of individual standards rules which apply to a wider population of employees than are currently covered by the Approved Persons regime. The FCA will also consult on whether a set of individual standards rules would apply not just to Senior Persons, but to a wider population of employees.
The Commission made recommendations that when successful enforcement action is taken against a bank, Senior Persons must show that they took all reasonable steps to prevent or mitigate the effects of a specified failing, as well as introducing a new criminal offence of reckless misconduct. The FCA welcomes this recommendation which addresses concerns that bankers have not taken their regulatory responsibilities seriously.
While the FCA agrees with the Commission that the presumption of responsibility should only apply to Senior Persons where there has been misconduct, it disagrees that it should always have to take separate (or prior) disciplinary action against the institution on the basis that it could be unfair to individuals or case delay.
The FCA supports the Commission's wider recommendations on remuneration in the report, including the benefits of flexibility in firms' choice of instruments and the development of legal and contractual arrangements to allow deferred remuneration to be recouped in a wider range of circumstances; however they do not agree that the Remuneration Code should be extended beyond “Material Risk Takers”.
With respect to corporate governance, the response agrees with the PCBS recommendations that Board's must be responsible for managing the risks within their organisations and agrees that the chairman and non-executive directors require access to independent advice and expertise to provide effective challenge to the executive. However, the FCA expressed concern that overly prescriptive regulation may lead to a “tick-box” approach to corporate governance. The FCA also supports the whistleblowing recommendations of the PCBS report, stating that they will consult in 2014 on whether additional rules are needed to set minimum standards for whistleblowing. This consultation will include the proposal that a member of a firm's senior management is made personally accountable for whistleblowing procedures.
While the document sets out the FCA's initial response to the Commission's recommendations, its actions will ultimately be subject to the Banking Reform Bill as well as EU Directives such as MiFID and the CRD II and IV. In addition, a number of outstanding issues will require further consultation which is expected to be carried out in 2014.