It may have been 10 years since the financial crisis, but regulators’ desires to increase accountability among senior management continues.
In the UK, post-crisis anger and frustration over the perceived failure to hold the banking sector to account helped to fuel the creation of the Senior Managers and Certification Regime (SMCR), which was brought into force in 2016 and is designed to make individuals more accountable for their conduct and competence.
First applied to banks and building societies, the regulation is now in the process of being extended to apply to almost all regulated firms, including insurers and eventually intermediaries. The SMCR is part of the Financial Conduct Authority’s (FCA) wider plans to improve poor culture among financial services firms, which it sees as having been at the root of many conduct and prudential failures, from pensions mis-selling in the 1990s to the later LIBOR and FX scandals.
Barclays boss Jes Staley was the first head to roll under the SMCR, when he was fined £642,430 by the FCA and the Prudential Regulation Authority (PRA) and lost a company bonus of £500,000 in May for his actions in attempting to unmask a whistleblower.
“This is a very long, slow burn. This starts really with the failure of the regulators to find a way to hold senior people to account during the crisis,” said Gavin Stewart, associate director of Grant Thornton and former FCA chief risk officer, of the SMCR.
“This only arises because parliament, the media, and the public generally were dissatisfied with various aspects of how the regulator was able to act during the crisis,” he continued.
But the application of the SMCR to a wider set of businesses than just the banking sector could be a step too far, according to Stewart.
“Part of my caution about the regime as a whole, is that what effectively has happened here is something that was designed to deal with a problem in, let’s say, half a dozen major banks during the crisis, has morphed into a massive scope that covers every regulated firm,” he said at an MGAA event at Lloyd’s of London this week.
“It’s done that over a number of different steps, but it still seems to me, as a former regulator, quite a significant piece of scope creep, with not a lot of solid evidence that what may well be a good idea for major clearing banks is automatically a good idea for everyone else.”