Tuesday, September 02, 2014

Replacing APER: the new Senior Management Regime and Certification Regime for banks

01 September 2014 Download PDF

Executive Summary

The FCA and PRA have begun consultation on:

  • a new Senior Managers’ Regime (SMR) to replace the old Approved Persons Regime (APER), but covering a narrower range of individuals than APER;
  • a new Certification Regime (CR), whereby firms would have to self-certify certain employees as ‘fit and proper’, and would apply to a wider range of individuals than APER; and
  • new banking conduct rules for individuals, based on the rules in APER, but applying to almost all a firm’s employees;

all of which will apply only to banks, building societies and PRA-authorised investment firms. (See below for limits on geographical scope.) APER will be abolished in this sector, but will continue to be in place elsewhere (for the time being, at least: see also below).

The proposed regime change is extremely complicated: the result, perhaps, of combining two different systems (for PRA and FCA) into a scheme of late Byzantine intricacy. We have summarised each aspect of the consultation paper below –a high-level overview rather than an exhaustive analyis – but the highlights of the proposals are:

  • the new, statutory 'Presumption of Responsibility' – or reversed burden of proof – where, if a firm has breached a regulatory requirement, the Senior Manager responsible for the area of the breach will have to satisfy the regulators that he took "reasonable steps" to prevent, stop, or remedy that breach – with the possibility of facing individual sanctions if he cannot do so; (this does not entail strict liability: what constitutes "reasonable steps" will be determined on a case-by-case basis;)
  • as noted above, a greatly increased scope for the new conduct rules, which are based on (and replace) the APER rules; unlike APER, however, the new rules will apply to almost all employees of a bank, building society or PRA investment firm;
  • Senior Managers will now be liable to enforcement action from three separate directions:
    • for individual breach of the conduct rules (FSMA ‘Condition A’);
    • by being “knowingly concerned” in a breach of rules by the firm (FSMA ‘Condition B’); or
    • through breaches occuring in the areas for which they are responsible (FSMA ‘Condition C’)
  • Senior Managers are also liable to prosecution for the new criminal offence ‘relating to a decision causing a financial institution to fail’ (s.36 Financial Services (Banking Reform) Act 2013).

Responses to the consultation are required by Friday 31 October 2014.