SPOTLIGHT ON THE CERTIFICATION REGIME

Consider this scenario:  a senior manager at a bank meets the FCA on one of the regular Supervision visits and is asked about sale of a new product as the FCA has been receiving complaints about the product and the sales process.  The senior manager has overall responsibility across a number of areas of the business and has delegated work regarding sale of the new product to two direct reports, one dealing with product development, the other with responsibility for sales.  After reviewing responses to information requests, it becomes apparent that the FCA is considering enforcement action.  The firm instructs legal advisers and the senior manager wonders whether he should have independent legal advice.  The two direct reports are running around gathering information and it doesn’t occur to them to consider their own position because the buck stops with the senior manager. 

But is that wise?  Individuals who fall within the scope of the certification regime (CR) have received far less attention than those falling within the senior managers’ regime (SMR).  It’s time to re-think that because CR staff also have the potential to fall at the sharp end of enforcement. 

To recap:  the SMR requires senior managers to be approved by the relevant regulator, with a statement of responsibilities for each senior manager, including any prescribed responsibilities.  Senior managers are those with overall responsibility and that’s reflected in the conduct rules that apply to them in addition to the conduct rules that apply to all staff.  Senior managers’ reports will often be CR staff. 

Some important points follow from this: 

·         Senior managers rely on their reports to tell them what they need to know.  Yes, they need to delegate appropriately, retain oversight, ask questions and challenge but they’re generally dependent on their direct reports to provide them with information. 

·         Senior managers have, though, been prepped and trained and told and warned so they should be in a position to ask the right questions and challenge appropriately.

·         The direct reports (who are likely to be CR staff) may be less likely to understand how important it is that they delegate, ask questions and challenge their own direct reports to the standards required of senior managers.  Information direct reports receive will be passed on to senior managers but what information is provided and how it’s presented can be critical to how it’s understood.  In other words, CR staff have to manage up and down in circumstances where managing up can have serious consequences for senior managers.  They need to consider what the implications could be if senior managers blame their direct reports. 

·         CR staff don’t have the same delegation and oversight responsibilities as senior managers and the corresponding senior manager conduct rules don’t apply to them but that doesn’t give them a free pass.  They still need to be able to evidence how they’re doing their job – and how they’re complying with the conduct rules.  The standards expected of CR staff in relation to conduct rule compliance will almost certainly be higher than the standards expected of other staff. 

There are numerous other scenarios that I could have sketched out at the beginning of this entry but the message is the same:  that CR staff need to consider their position.  There hasn’t been proper testing of enforcement action under the SMR yet – let alone the CR – but don’t be the FCA’s test case.

 

The blog and all entries on it are intended to provide general information about recent and expected items that might be of interest.  Neither the blog nor any entry provides or constitutes, or purports to provide or constitute, advice relevant to any particular circumstances.  Legal or other professional advice relevant to any particular circumstances should always be sought.

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