A New Dawn For Bankers: The Senior Managers And Certification Regime From An Employment Law Perspective

A major overhaul of the regulatory regime affecting bankers came into force on 7 March 2016, in the shape of the Senior Managers and Certification Regime (SMCR).

The SMCR was born out of the response to the financial crisis, and is designed to improve banking culture by shifting the focus from corporate to individual responsibility. A similar, though arguably less burdensome, regime has also been introduced in the insurance sector at the same time.

The SMCR seeks to achieve its aims in a number of ways:

  • Those who carry out specified senior management functions at the bankhave been allocated prescribed responsibilities. This has been done via an overall governance map for the bank, and implemented at an individual level by statements of responsibility which set out each senior manager’s responsibilities. The idea is that there are no gaps in coverage, and if there is a failure in a particular area of the bank the senior manager responsible for that area is answerable to the regulators for it.
  • A new certification regime has replaced ‘approved persons’ with ‘certified persons’ and covers more of the bank’s staff than under the previous approved persons regime. The bank, rather than the regulator, has assumed primary responsibility for ensuring the fitness and propriety of its workforce. Each year it has to certify each affected employee’s fitness and propriety to perform their relevant function.
  • The standard of ‘fitness and propriety’ is unchanged, but the bank must notify the regulator if one of its employees breaches conduct standards, and of any formal disciplinary action taken.
  • A new regulatory referencing regime has come in, requiring hiring employers to obtain references going back five years, and requiring the old employers to disclose all information relevant to the assessment of the person’s fitness and propriety.

The SMCR represents a ‘sea change’ in the way that senior individuals in banking are regulated and there are likely to be a number of legal, and practical, consequences.

  • It may be that an employee’s new personal responsibilities place them in conflict with their employment duties. For example, if a senior manager thinks that the bank is under-resourcing their area, such that they risk being personally responsible for a failing, how does this interact with the manager’s duty to follow the employer’s lawful instructions, and if the employee is a fiduciary, to act in his employer’s best interests?
  • As the new regime makes individual sanctions against senior managers more likely in the case of institutional failings, there should be greater scrutiny on the availability and adequacy of directors and officers insurance, and employer indemnities.
  • If senior managers have been asked to take on new levels of personal responsibility, will this be reflected in rising levels of executive pay? Anecdotally, this has not happened yet, and the executives concerned are being asked to assume the additional duties regardless.

It seems inevitable that there will be greater ability to finger point when something goes, or is about to go wrong, and at least possible that, if the employee believes they are being placed in a conflicting situation, the protection afforded to whistleblowers will play an increasingly significant role in the employment relationship.

For advice or enquiries regarding the SMCR please contact Nick Wilcox, senior solicitor at Brahams Dutt Badrick French LLP here