Senior Managers Regime - The implications for

Foreign Banks

22nd September 2015

Julie Pardy

Emily Benson

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1. On a scale of 1 to 5 (1 no progress made - 5

being ‘we are on track’) how much progress

have you made towards meeting your SMR and

CR requirements?

A 1

B 2

C 3

D 4

E 5

Senior Managers Regime - The implications for Foreign Banks

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2. On a scale of 1 to 5 (1 no confidence - 5 very

confident) how confident do you feel that you

have the systems, processes and training in

place to meet SMR and CR requirements?

A 1

B 2

C 3

D 4

E 5

Senior Managers Regime - The implications for Foreign Banks

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3. On a scale of 1 to 5 (1 no awareness - 5 fully

aware) are you of the specific requirements for

Foreign Banks to meet the SMR and CR

requirements?

A 1

B 2

C 3

D 4

E 5

Senior Managers Regime - The implications for Foreign Banks

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Agenda:

I. Introduction to the Webinar

II. Background to the history of SMR and BBA involvement

re Foreign Banks

I. Common areas of mis-understanding

II. Non EEA Branches & EEA Branches

III. Senior Managers Regime

IV. Compliance

V. Certification Regime

VI. Conduct Rules

VII. Fitness and Propriety Requirements

VIII. Questions and Answers

IX. Close

Senior Managers Regime - The implications for Foreign Banks

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• Overview

• The Scope – non EEA and EEA branches

• The Executive Director

• Other Local Responsibility

• Compliance Oversight

• Prescribed Responsibilities & Responsibility Mapping

• Presumption of Responsibility

The Senior Managers Regime

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• Banking Reforms

• Banks, Insurers, PRA designated investment firms

• Banking Act

• Effective 07 March 2016

• Senior managers – pre-approval by FCA

• Statement of responsibility

Overview

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Senior Individuals who hold key roles or have local

responsibility for key areas requiring regulatory pre-approval.

The Senior Managers Regime

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• EEA Branch & Non EEA Branch

• The Compliance Oversight function

• Overseas Branch Senior Management Function (OBSM)

• EEA Branch Senior Manager Function (EBSM)

• Significant Harm Definition

• Material Risk Definition

Common areas of misunderstanding

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• An EEA firm undertaking deposit taking via a branch in the

UK via an establishment passport

• Where an EEA firm has permission to accept deposits in

the UK via a services passport only and is NOT

undertaking any activities in relation to a branch in the UK

the regime does NOT apply

• If an EEA firm has both a services and establishment

passport they are subject to the SMR and wider

accountability regime

EEA Branch Definition (subject to the SMR and wider accountability regime)

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Branches of Non –UK firms outside of the EEA that have

permission to accept deposits or deal in investments as

principle in the UK

Non- EEA Branch Definition

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OBSM Other

Local Responsibility

Executive Director

SMF3

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EEA Branch Senior Manager Function(EBSM) -

EEA Branches

• Responsible for a significant business unit i.e. accepting

deposits • Member of a committee that takes decisions relating to a

significant business unit • Not limited to the most senior individual responsible for an area • No FCA governing functions apply to EEA branches • Branch manager does not need pre-approval unless they are

also have significant responsibility for a significant business Unit

• Individuals currently performing CF29 do not necessarily grandfather over to the EBSM

• Definition of EBSM expands to include branches with top up permission (CASS)

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• A tailored list of 12 prescribed responsibilities for all Non-

EEA branches ( no differentiation between smaller and

larger firms)

• Must be allocated to an approved person

• Chief Risk Function

• Compliance Oversight

• Local Responsibility

• Apply in specified circumstances

Prescribed Responsibilities

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FCA

EEA

• No gold plating

• Senior manager

• MLRO

Non- EEA branches

• Executive director

• Other local responsibility

• Compliance oversight

• MLRO

PRA

• CFO

• CRO

• Head of internal audit

• Group entity senior

management function

• Head of overseas branch

Scope

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Responsibility Mapping

Consider the activities . Bus

areas or functions & the

relevant prescribed

responsibilities

Identify individuals that hold SMF’s 2 -

19

Allocate the relevant

prescribed responsibilities

ID individuals who have local responsibility for any other

activities, functions or

business areas

Record the allocation of

responsibilities

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• Is my organisation on track to hit key SMR deadlines?

• If not, what is the contingency plan?

• Is my organisation clear on who is to hold a SMF in the

UK branch

• If not, what plans are in place to identify these individuals?

• Is there clarity within my organisation about allocation of

responsibilities

• If not, how do you plan to achieve that clarity?

Questions for you to consider

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• Overview

• Territorial scope

The Certification Regime

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The regime will apply to individuals in UK relevant firms

and non-EEA branches based in the UK or dealing with a

client in the UK, performing a role relating to a firm’s

regulated activities that could pose risk of significant harm

to the firm or its customers.

Applies to those involved in aspects of the RAP's affairs

relating to that (regulated) activity and those aspects

involve, or might involve a risk of significant harm to the

RAP or to anyone who is using (or is or may be

contemplating using) the RAP's services.

Guidance on significant harm function in COCON 5.2R

Territorial Scope of The Certification Regime

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The new Certification Regime – Key implications

The FCA will no longer pre-approve (CF30’s)

The new certification process becomes the

responsibility of the firm

A firm must certify their people annually

Fitness and Propriety must be assessed

annually

A Senior Manager within the firm will have to

assume responsibility for the internal assessment and certification process

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• Have we identified the individual that will have accountability for

signing off the Certification Regime within our organisation?

• If not, how do we plan to achieve this?

• What areas of the business will be impacted by this change and what

will they need to do differently to accommodate this?

• What types and size of populations do you have that will come into an

approvals process of this nature for the first time?

• What impact will this have on employee terms and conditions?

• What progress have you made in identifying changes required?

• What changes will you need to make to your recruitment processes to

accommodate the change of requirements that the Certification

Regime will bring?

Questions for you to consider

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• Overview?

• Scope?

• What implications are there for

training?

The Conduct Rules

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The new Conduct Rules

Current Statement of Principles to be replaced by a set of Conduct Rules with far wider application

PRA/FCA both propose that the Conduct Rules

should apply to all Senior Managers and their

respective populations in the Certification Regime

In addition, the FCA proposes to apply the

Conduct Rules to all other employees of relevant

firms

EEA Branches – only applies to staff in

relation to matters within the UK’s scope of

responsibilities as the host regulator

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• All staff that are subject to the rules must be

trained

• Staff should be trained with examples that are

role relevant

Training required and challenges for firms?

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• How many people within your organisation will come under the new Conduct Rules?

• What plans do you need to make to deal with the training requirements that SMR brings in this area?

• SMR introduces a requirement that staff are trained on Conduct Rules relevant to their job role - What does this mean to your organisation?

• How many variations on a training theme will you need to create in order to meet this requirement?

• How do you plan to provide “examples of good/poor conduct” in respect of the new Conduct Rules that are role relevant?

Questions for you to consider

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• To whom does this apply?

• What are the requirements?

• Implications of failure?

• Presumption of Responsibility for individuals

in-coming branches

Fit and Proper Requirements

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Those Affected

• Applicants for Senior Management Functions

• Holders of Senior Management Functions

• Individuals falling within the Certification Regime

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• Annual Assessment

• DBS check where possible for senior

management

• Reasonable steps to acquire relevant information

• Firms will need to consider whether the individual

is fit and proper

What F & P requirements does SMR bring?

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• Regulator advised if an SMR fails the F & P Test

• Annual internal certification not renewed

• HR implications for the firm

• Employment implications for the

individual

Implications of failing the “Fit and Proper” Test

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• What systems capability will I need in order to manage the expanded F & P requirements?

• How many additional staff within my organisation are impacted by this change?

• What legal/ HR advice do we need with regards to employment law and any changes in contracts of employment?

• How will we make a judgment call if all required information is not available

• What costs will be involved in additional referencing and background checks for staff affected?

• What will our annual F & P check look like within our business and what data will need to feed into it to be able to complete the check?

• What additional resources might be required in order to manage these additional requirements?

Questions for you to consider

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• FCA CP15/10/PRA CP9/15 Strengthening accountability

in banking : UK Branches of non-EEA banks

• PRA CP20/15 Strengthening accountability in banking :UK

branches of non – EEA banks

• CP15/22 Strengthening accountability in banking: Final

rules (including feedback on CP14/31 and CP15/5) and

consultation on extending the Certification Regime to

wholesale market activities

Relevant Consultation Papers and Feedback Papers

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• Summary and Close

• Next Steps

• SMR Workshops –

• E Learning – Autumn 2015

• BBA Training/Consulting Support –

• Questions & request for support to philip.allen@bba.org.uk

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BBA 2015

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Senior Managers Regime - The implications for Foreign Banks