Changes to the Approved Persons Regime
Changes are being made to the approved persons regime for banks and PRA-regulated proprietary trading firms, designed to bring about more effective regulation.
Senior Management Function
A new senior management function will replace the current significant influence function and will cover certain categories of senior staff designated by the regulator. The senior management function will cover a smaller number of roles than the current significant influence function and is intended to capture only very senior staff - those who are responsible for managing one or more aspects of the firm’s affairs (relating to a regulated activity), where those aspects involve or might involve a risk of serious consequences for the firm , for business or other interests in the United Kingdom.
In likelihood this will cover board members and senior directors of banks and PRA-regulated investment firms who are decision-makers.
Those holding a senior management function will be held to account should things go wrong. A written statement of responsibilities will have to be produced for each role, so as to ensure that a named individual is accountable for each key risk in the business. Where there has been a breach of the rules by the firm in a person’s area of responsibility, misconduct by that person will be presumed, unless they can show that they took reasonable steps to prevent the breach.
In addition, a senior manager can be found guilty of a criminal offence if a decision taken by them leads to the failure of the firm, they were aware at the time of taking the decision that it may do so and their conduct falls far below what would have been reasonably expected of a person in their position. The offence can lead to a prison sentence of up to seven years.
When leaving a senior management role, the senior person will have to prepare a handover certificate describing how they have met their responsibilities and any issues the new incumbent of the role should know about.
The current customer function will be replaced with a certified function, covering other bank staff whose actions could seriously harm the bank, its reputation or its customers. The certified function will have a much wider application than the current customer function. Individuals will be licensed by the bank and given a certificate, valid for twelve months, setting out their duties. Banks will have to train staff on the rules and report instances of non-compliance and disciplinary action taken.
Banking Standards Rules
New banking standards rules will replace the existing Statements of Principle for Approved Persons and the associated codes of practice, which the Parliamentary Commission on Banking Standards considered to be incomplete and unclear in their application.
The changes are being made by the Financial Services (Banking Reform) Act 2013 and follow on from the report of the Parliamentary Commission on Banking Standards, Changing Banking for Good, published in June 2013 which described the existing regime as a “complex and confused mess”.
Although these changes only apply to banks and PRA-regulated proprietary trading firms, they are likely to be extended more widely, including to the insurance industry, in the future.
For advice on FCA and PRA regulatory matters and the approved persons regime, please contact Jessica Corsi who specialises in this area.
The articles published on this website, current at the date of publication, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your own circumstances should always be sought separately before taking any action.