On 30 March 2023, the Financial Conduct Authority (the FCA) and the Prudential Regulation Authority (the PRA) published a joint discussion paper (DP) on the review of the Senior Managers and Certification Regime (SM&CR). In addition, HM Treasury (the Treasury) launched a call for evidence on the same. Please see our blog post here for a summary of these publications.
One focus of the review is the impact of the SM&CR on international competitiveness and growth - the proposed new secondary objective of the UK regulators. The inclusion of this in the review, whilst not surprising, demonstrates the importance of this objective to the UK government and regulators.
A new international objective
It is clear that the government wants to ensure that the UK is a world-leading financial services market – the Treasury in its call for evidence states that it is important that the UK is recognised as "one of the best places in the world to conduct financial services business". This focus of the UK government is reflected in the new secondary objective of the FCA and PRA in the Financial Services and Markets Bill: "international competitiveness and growth". For more information on the government’s ‘Edinburgh Reforms’, of which this SM&CR review is part, please see our blog post here.
Not a new concern
The question of the impact of the SM&CR on international competitiveness is not new, and this concern was evident at the time of implementation (see the FCA’s consultation paper in July 2017, CP 17/25). While a number of other countries have followed the UK’s lead and introduced personal accountability regimes and the SM&CR is generally recognised to have improved governance standards, the implementation and compliance with the regime give rise to costs to UK firms, and with the length of time for approval of senior managers, there has been a concern that the regime could hinder the UK market’s attractiveness. As explained in the Appendix to the DP, other countries which have adopted individual accountability regimes often do not include a requirement for prior regulatory approval before an individual takes a senior position (for example in Singapore and Malaysia).
There remains a question, however, as to whether in reality the SM&CR really has had a negative impact on international competitiveness. In the FCA’s view, the higher standards of conduct and culture within firms may improve the integrity of the market, drawing in foreign investment and business. The DP also explains that over the years firms have reported that one effect of the regime improving conduct, governance and individual responsibility is that firms can run their businesses more efficiently.
Potential changes to the SM&CR
It is clear from the open nature of the questions in the DP and the call for evidence, that the UK government and regulators will consider changes to the SM&CR which help align with the objective of international competitiveness. The DP asks the following:
"Q10: Are there actions the regulators could take in respect of the SM&CR that would help enhance competition or international competitiveness?"
The call for evidence is clear in its purpose - the government is interested in any views as to whether the regime has an impact on the UK’s attractiveness as a destination for financial services business, and ways to improve this ‘attractiveness’. It is clear that the government believes that learning from, and aligning with, other international regimes could help achieve this purpose (see paragraphs 3.14 – 3.17 of the call for evidence).
Whilst the increased focus on international competitiveness is welcome to many, there continues to remain the important question of the extent to which objective can be furthered whilst also maintaining the overarching purpose of the SM&CR, to protect consumers and firms. What is clear however, from a recent speech by Vicky Saporta of the PRA (27 February 2023), is that the PRA expects that the new objective will make a ‘big difference’ to the way it makes its rules in the future.