The FCA and PRA have published a joint consultation paper (FCA CP15/5 and PRA CP7/15) on the revised position of Non-Executive Directors (NEDs) of UK banks in respect of the Senior Managers Regime (SMR), as well as the application of the presumption of responsibility provisions introduced by the Financial Services (Banking Reform Act) 2013 to senior managers in banking firms.
The joint consultation paper sets out the regulators’ revised approach to NEDs, under which the following NEDs will be in scope of the SMR:
- chairman;
- senior independent director; and
- chairs of the risk, audit, remuneration and nominations committees.
The individuals performing these roles will be subject to all aspects of the SMR, including regulatory pre-approval, conduct rules and the presumption of responsibility.
The joint consultation sets out the regulators’ approach to NEDs in the pre-approval and individual accountability regime for Solvency II firms, and the PRA’s proposed fitness and propriety and notification requirements for NEDs outside the scope of the SMR (standard NEDs). The PRA proposes to make standard NEDs subject to the conduct rules.
As part of the consultation the PRA has issued a draft supervisory statement setting out how the PRA intends to apply the presumption of responsibility and the reasonable steps defence. The PRA proposes that in order for the presumption of responsibility to arise, it must be satisfied that:
- the individual is (or was) a senior manager;
- there was a contravention of the relevant requirement by the firm; and
- the senior manager was responsible for managing any of the activities in relation to which the contravention occurred.
The PRA states that the first and third elements are statement of fact. In respect of the second element, the fact that the PRA may have reached a bilateral settlement with a firm in relation to some or all of its breaches does not bind the PRA or the individual in considering whether this element is satisfied.
In relation to the reasonable steps defence, the PRA will not apply standards retrospectively or with the benefit of hindsight. The PRA sets out examples of the considerations the PRA may consider when assessing what steps are relevant.
Next steps. The joint consultation closes on 27 April 2015. The FCA and PRA will publish policy statements in spring 2015.
Copies of the joint consultation paper,
the PRA’s consultation webpage,
the FCA’s consultation webpage,
the PRA’s press release and
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