City regulator toughens up financial accountability rules after scandals

Tougher accountability rules have today been extended to cover around 47,000 firms across the financial sector, as the financial watchdog seeks to clean up the City’s reputation following a string of scandals. 

The Senior Managers and Certification Regime (SMCR) holds firms’ senior managers directly accountable for their actions, and is intended to help regulators punish the right people quickly for failures on their watch.

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The new regulation, which was initially introduced to cover banks and insurers three years ago, is today being rolled out to cover all asset managers, independent financial advisers and hedge fund managers regulated by the Financial Conduct Authority (FCA).

“SMCR fundamentally swings the pendulum of personal accountability for wrongdoing from the trading floor to the boardroom,” said Quinn Perrot, co-founder of regulation-focused fintech Traction.

The introduction of the tougher rules come at the end of a year during which regulators have trained their sights on the fund industry following scandals including the collapse of Neil Woodford’s investment empire. 

Concerns were raised when SMCR was introduced in 2016 that the rules would make it harder to find staff willing to take on the additional responsibility, but legal experts generally view the enforcement of the regime by the FCA and Bank of England’s Prudential Regulation Regulation Authority division as negligible. 

DLA Piper partner Michael McKee said the implementation of SMCR “will not seem like a step change at first” for many firms.

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“However, the challenges associated with the SMCR come from the change in supervisory expectations on boards and senior managers and in the impact of enforcement action – when this is taken,” he added. “

These changes will flow through later – in the second half of 2020 and beyond.”