New accountability regime to UK branches and Solvency II firms

13 August 2015
Knowledge Base

The Financial Conduct Authority (FCA), alongside the Prudential Regulation Authority (PRA), has today published near final rules confirming how it will apply the new accountability regime to UK branches of overseas banks, and also confirms reforms to the approved persons regime for Solvency II firms.

Today’s publication follows joint FCA-PRA final rules on improving individual accountability in the UK banking sector, which was published on the 7 July. Martin Wheatley, Financial Conduct Authority chief executive, commented:  “Today’s rules are the latest changes aimed at embedding personal accountability in the culture of financial services and are a crucial step in rebuilding public trust.”

UK branches of foreign banks

In June 2013, the Parliamentary Commission for Banking Standards (PCBS) published its report “Changing Banking for Good”, setting out recommendations for legislative and other action to improve professional standards and culture in the UK banking industry. This was followed by legislation in the Banking Reform Act 2013 to replace the Approved Persons Regime for banks, building societies, credit unions and PRA-designated investment firms with a new regulatory framework for individuals.

The new accountability regime covers the Senior Managers Regime; the Certification Regime; and new Conduct Rules. While the Senior Managers Regime will ensure that senior managers can be held accountable for any misconduct that falls within their areas of responsibilities, the new Certification Regime and Conduct Rules aim to ensure individuals working at all levels in banking maintain appropriate standards of conduct.
On 3 March 2015, the Treasury announced, following consultation, its intention to apply the new accountability regime to UK branches of foreign banks (‘incoming branches’) in a Written Ministerial Statement (WMS). The Treasury laid the secondary legislation extending the regime to incoming branches in Parliament on Monday 20 July and expect to finalise this in Autumn 2015. The FCA has today published near final rules on how it will apply the accountability regime to those incoming branches.
The rules are aimed to address the inherent differences between incoming branches and UK relevant firms, while minimising the potential for arbitrage across UK relevant firms and incoming branches, which can pose similar conduct risks to the UK market. For European Economic Area branches, the proposals also reflect the split of home and host state supervisory responsibilities under the relevant single market directives.

Accountability in Solvency II firms

The FCA has today set out final rules for the approved persons regime for individuals working in Solvency II firms. These changes are an important part of the overall drive to raise standards of individual conduct across the financial services industry. These rules take into account provisions in the Financial Services (Banking Reform) Act 2013 that apply to insurers, changes that the PRA are making to their approval regime for these firms, and requirements in Solvency II around the governance of firms and the fitness and propriety of key function holders within them.
The rules include:
• Changes to the scope of the FCA’s approved persons regime. These will ensure robust oversight and continued enforcement power over key individuals who can significantly impact the FCA objectives, whilst maintaining a proportionate approach;
• Changes to the fitness and propriety assessments of candidates for FCA regulated Significant Influence Function (SIF) roles to reflect the Solvency II framework and EIOPA guidelines. These will support the implementation of the fitness and propriety requirements of Solvency II in a way that is proportionate and minimises the burden on firms, by avoiding them having to make further submissions to the PRA as the lead regulator for the transposition of these requirements;
• New Conduct Rules for approved persons in Solvency II firms to encourage appropriate behaviour by staff, in particular through an enhanced focus on treating customers fairly and responsible delegation by senior staff; and
• Changes to governance arrangements, particularly to support enhanced accountability of senior staff in firms.

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