City watchdog's plans to increase accountability across financial services could cost firms more than £552m

 
Lucy White
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The Senior Managers and Certification Regime previously applied only to bankers (Source: Getty)

The Financial Conduct Authority (FCA) has today opened a consultation on its plans to increase accountability across the financial services sector.

The move will involve rolling out the Senior Managers and Certification Regime (SM&CR), which currently only applies to bankers, across the whole of the industry.

Read more: Senior Managers Regime to put bankers in the dock: Financial Conduct Authority unveils new accountability rules

But the FCA estimates it could cost all FCA-regulated firms a total of up to £552.3m in one-off costs and a further £190.5m in ongoing costs, as well as adding an extra £13.4m to the watchdog's own expeditures.

“Culture and governance in financial services and its impact on consumer outcomes is a priority for the FCA,” said the authority's Jonathan Davidson.

“This is about individuals, not just institutions. The new conduct rules will ensure that individuals in financial services are held to high standards, and that consumers know what is required of the individuals they deal with.

“The regime will also ensure that senior managers are accountable both for their own actions, and for the actions of staff in the business areas that they lead.”

Read more: It's a thumbs up from the City: Over half of bankers think the Senior Managers' Regime was a good idea

What will the regime involve?

The FCA proposes three parts to the new regime including five conduct rules to apply to staff, clearly set-out responsibilities for senior managers and a compulsion to certify individuals for their fitness every year if they are not covered by the Senior Managers Regime but their jobs significantly impact customers or firms.

Gavin Stewart, regulatory specialist at accounting firm Grant Thornton, said:

On the face of it, SM&CR is all about accountability maps and statements of responsibility for senior manager functions.

Underneath, however, it will affect who is involved (or wants to be) in certain decisions, and whose responsibility it will be to sort out problems in specific areas. And if your accountability map does not give a true reflection of how your business operates in practice, you will almost certainly tie yourself in knots.

Read more: We'll see you in court: New senior manager rules could mean fewer bumper fines for City watchdog and more days in court

The five conduct rules which will apply to all financial services staff are:

Act with integrity

Act with due care, skill and diligence

Be open and cooperative with regulators

Pay due regard to customers' interests and treat them fairly

Observe proper standards of market conduct

In order to make the regime proportionate, the FCA will apply a “core regime” baseline to all regulated firms and an “enhanced regime” to the largest and most complex firms, which constitute less than one per cent.

But many in the industry have warned that this will still be a huge step up for smaller financial services firms.

“Whilst the FCA recognises that it is not appropriate to apply the same regime to a small high street firm as to a multinational bank, it is perhaps surprising that the FCA has chosen to carry so much across from the banking regime to other financial services firms,” said Guy Wilkes, a partner at law firm Mayer Brown who used to work at the FCA.

“Many employees of smaller firms will be surprised that they are now in the regulator’s sights.”

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