Tens of thousands of finance workers could be exempted from post-crisis rules which hold them personally accountable for failings on their watch as the UK government presses ahead with plans to boost the City of London’s competitiveness.
The government vowed to overhaul the old system — known as the Senior Managers & Certification Regime — as part of the Edinburgh reforms, which are designed to free the City from overly burdensome regulations in the aftermath of Brexit.
The Treasury has reiterated its commitment to the reforms even as the recent failure of Credit Suisse and a handful of US banks triggered fresh scrutiny of risks in the finance sector.
A person familiar with the Treasury’s thinking told the Financial Times that the accountability review could lead to tens of thousands of people being excluded from the regime, which currently covers around 190,000 individuals.
The UK believes this would boost competitiveness relative to other financial centres whose accountability programmes cover a smaller proportion of the workforce.
The UK regime may also give “more credit” for individuals’ experience internationally when assessing their suitability for similar roles in the UK, the person added, offering as an example a trader who was already approved by German regulators and wanted to perform a similar role in London.
The Treasury hopes that both measures would address the concerns of finance industry bosses, who are understood to have told officials that the current regime is a bigger barrier in attracting talent to the UK than the process of acquiring visas for foreign nationals, in part because the regime is so onerous, and in part because it takes so long to get applicants through it.
“The fit and proper test for senior managers is here to stay — the 2008 global financial crisis taught us that they must be held accountable for their actions,” City minister Andrew Griffith told the Financial Times. “But we want to ensure it is being used proportionately to avoid unintentional effects, such as slowing down the recruitment of the best talents globally.”
The Treasury hinted at its thinking in a call for evidence this week. It asked firms for their views on how the SMCR impacts the UK’s competitiveness and for suggestions of “other regimes” that the government could learn from.
The Bank of England and the Financial Conduct Authority last week separately published a document showing that the UK’s regime was more expansive than those in force in other jurisdictions including Singapore, Australia, Malaysia and Ireland.
Richard Burger, partner at law firm WilmerHale, said the industry would “very much welcome” any narrowing of the regime, which requires firms to assess annually the fitness and propriety of around 120,000 more junior employees through certification. They must also put forward people whose decisions materially impact their firms’ riskiness for pre-vetting by regulators under the senior managers regime, which covers around 68,000 people.
“If you look across other jurisdictions . . . it doesn’t seem to have been to their detriment in terms of their financial services system and their economy to have narrower functionality and scope,” Burger said. He added that narrowing the regime could relieve bottlenecks at the FCA, which has been criticised for the length of time it takes to approve applications.
Still, Simon Morris, a financial services Partner with law firm CMS, said it would be “retrograde” to remove lower level staff from the regime, since the absence of prosecutions under the current model “demonstrates that firms and their managers are getting things right”.
“Overseas comparisons won’t necessarily help,” Morris added. “Few other countries have such a disproportionately large and important financial sector. And it’s worth remembering where the banks are currently collapsing. Effective UK standards shouldn’t be compromised for short term political gain.”
The Treasury’s call for evidence runs until June 1, as does a separate industry consultation which is being run by the FCA and Bank of England.