Notwithstanding the need to prioritise EU withdrawal work, the topic of culture and governance continues to be one of seven cross-sector priorities in the FCA's 2018/19 Business Plan published on 9 April. It should come as no surprise that firms' culture and governance and the role of senior individuals remain high on the FCA's agenda given their repeated recognition as key drivers of consumer and market outcomes.

The latest fines and bans announced by the FCA reflect its commitment to protect the integrity of the UK financial system and support and drive cultural change across the industry.

Also, in recent communications, the FCA confirmed that its focus for this year includes senior management accountability and remuneration, and the steps firms and their senior managers take to address any risks caused by their behaviours. This covers the following key activities: 

  • embedding the senior managers and certification regime (SM&CR) in the supervisory approach and processes; and
  • extending the accountability regime for all FSMA firms (expected in 2019 – date yet to be announced by the government), including further developing the regime for insurers (will apply from 10 December 2018).

In this context, there are a number of recent and upcoming developments which will be of interest to firms in this area:

  • the FCA has recently released the outcome of its "5 Conduct Questions Programme" as part of its supervision strategy and this should be used by firms as a guide when implementing the SM&CR conduct rules;
  • the FCA is expected to publish its Policy Statement with final rules on the extension of the SM&CR to all FCA-authorised firms this summer;
  • the FCA is also expected to publish a Policy Statement in the summer concerning its proposals to introduce a public register following overwhelming responses to CP 17/25 that the removal of the register for certain certified staff needed to be revisited; and
  • the FCA will take a broader look at all firms' remuneration arrangements in 2018/19 to identify the potential or actual harm from the remuneration schemes of firms that are not subject to its Remuneration Codes.

For those who may have been following the debate about whether in-house General Counsel should be in or out of scope of the regime, it appears this has been a victim of the need to deprioritise in order to address Brexit issues. In the press meeting accompanying publication of the Business Plan, it was noted by Andrew Bailey that this is not an easy question and that the FCA's planned work on this has had to be postponed for the time being. 

Beyond the black letter implementation of the SM&CR, there is increasing recognition by industry bodies and regulators that other factors, particularly diversity and inclusion, the purpose of an organisation and incentives, all combine with leadership and governance to impact on a firm's culture and the public trust it has. It appears that the next area of scrutiny is likely to be remuneration structures so firms would be well advised to look at the FCA's work on incentives in the consumer credit sector and consider how their own arrangements compare to the good and bad practices the FCA identifies there.

It may seem like 2019 is some way off but, with many firms coming to the end of their GDPR implementation projects, we are seeing increasing numbers of enquiries from firms who are now starting to look to the challenges ahead and take more concrete steps towards implementing the SM&CR.  We plan to host the next in our combined Dentons/Baringa series of SM&CR round tables focused on the asset and wealth management sector in September. This event will focus on the certification layer of the regime and in particular address the FCA's proposals for creation of a public register.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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