The changing nature of accountability in financial services

The Financial Conduct Authority (FCA) requires all regulated businesses to ensure that individuals performing regulated activities (“controlled functions”) are of suitable standing and integrity to do so.  “Controlled functions” includes those senior finance professionals with significant influence in a firm’s regulatory activities, and are confident in their ability to review and take on the personal accountability.

A focus for many businesses now is ensuring they have experience finance professionals in place who are able to meet the requirements of the ‘Senior Managers Regime’. Only those approved by the FCA and Prudential Regulation Authority (PRA) are permitted to undertake controlled functions. Similarly ‘approved persons’ must satisfy the FCA’s “fit and proper” test, which depends on the controlled functions they are applying for but it includes minimum standards relating to honesty, integrity and reputation, competence and capability and financial soundness.

Meeting regulation now carries greater responsibility

Unsurprisingly, businesses are placing an emphasis on hiring professionals who have the skills and knowledge to take on the responsibility that comes with the ‘Senior Managers Regime’. The clue to the expectations of senior finance professionals or an ‘approved person’ is accepting the required responsibilities that have become increasingly onerous over time.  As well as being aware of and complying with FCA regulatory requirements in relation to controlled functions, senior finance professionals also have a number of more specific obligations, including:

  • Comply with businesses and regulators to ensure they meet are fit and proper to carry out senior management functions
  • Taking accountability for their responsibilities in a senior management capacity
  • Reporting to the authorised firm and the FCA any change in personal circumstances that may affect their fitness and propriety.

Those taking on the responsibility in a company must remember that the role is a personal one. It should be seen as distinct from their employment. Failure to comply with the requirements can lead to enforcement against the approved person as an individual.

The future of regulation within businesses

Since the Parliamentary Commission on Banking Standards 2013 report “Changing Banking for Good” indicated a strong and clear regulatory intention to increase individual accountability in the financial sector, regulators have been pushing for a more rigorous regime and a move away from what some people call the ‘gateway function’ of the current system.

With the ‘Senior Managers Regime’ being implemented and enforced from 7 March 2016, businesses now need to make sure that they have the correct lines of responsibility in place and are able to report the accountability to the FCA.

Senior finance employees must now come to terms with the cultural changes taking place in the industry which all point to an ever increasing potential for personal liability when it comes to their actions at work.

Engaging a skilled professional on an interim or project basis to support the review of your current processes and personnel is one way to make sure that your business is compliant in time. Get in touch with one of our Robert Half Management Resources consultants who will be able to advise your business on who is best placed to consult with your existing team through these changes.