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Last month the Singapore regulator (MAS) published guidelines to strengthen individual accountability of senior managers across the Financial Services industry. In doing so, MAS became the latest in the growing trend of regulators across the globe to focus on governance and ensuring that organisations are setting the right tone from the top. MAS’ objective is to raise standards of conduct in financial services by (i) promoting individual accountability of senior managers, (ii) strengthening oversight of employees in material risk functions and (iii) embedding standards of proper conduct among all employees. Sound familiar? These three pillars mirror the UK’s SMCR regime which requires firms to (i) assign prescribed responsibilities to Senior Management Functions, (ii) implement the Certification Regime for employees who aren’t senior managers but whose role means it’s possible for them to cause significant harm to the firm or customers and (iii) abide by the Conduct Rules.
The MAS guidelines are targeted to be issued in Q4 of 2018. Elsewhere, the HKMA’s Manager in Charge (MIC) regime introduced similar requirements to Hong Kong licensed banks in late 2017. And Australia’s Banking Executive Accountability Regime (BEAR) will apply from 1 July 2018 to large Authorised Deposit-taking Institutions (ADIs), their subsidiaries, and Australian branches of foreign ADIs (smaller and medium sized institutions will have an extra 12 months to comply).
SMCR Global reach
Regulators in other international financial centres may be asking themselves whether they should adopt an individual accountability regime in order to show investors that firms in their jurisdiction are being managed and controlled in the right way. Indeed, in November 2016, the outgoing Chair of the SEC, Mary Jo White, said “we should closely study the track record of the UK’s Senior Manager Regime (SMCR) for what it can teach us about implementing a broader and stronger enforcement regime in the United States for holding executives accountable.” At present however, there are no plans to do.
Having said this, some Senior Managers in international firms will be caught by a senior managers regime (SMCR) even if they work in a country where the local regulator has not introduced such a regime. For example, both the UK and Singapore regimes propose that firms may designate senior managers who are based locally or overseas. This recognises that holding a local employee accountable for decisions that are effectively taken overseas, or vice versa, is neither appropriate nor in line with the objectives of the regime.
Good governance
So what do the regulators expect? Of course there is the task of meeting deadlines for the various documentation requirements, whether that be statements of responsibility, policies to enforce the expected standards of conduct, or a robust process to notify the regulator as soon as a firm becomes aware of a conduct breach.
In addition, the governance standards underpinning the individual accountability regimes should not be forgotten. Regulators expect that firstly, there is a cultural shift in firms where the increased onus on individuals means that senior managers take reasonable steps to prevent a regulatory breach from occurring. Secondly, they expect less absolute reliance on a firm’s compliance function; rather compliance with regulatory requirements should sit with the front line, particularly at senior management level. And thirdly, that firms take more ownership of detecting misconduct internally, as opposed to waiting until the regulator comes knocking.
Viewed this way, the introduction of the proposed guidelines on individual accountability should be viewed as an opportunity by firms to re-evaluate their existing management structures and arrangements and ensure they are clearly understood and enforced.
Held to account
For more detail on the similarities and differences between the accountability regimes, see our report “Held to account – The competitive impact of enhanced senior management responsibilities in global financial services”.
