Senior Managers Regime & the FCA (22/136)

This is the latest in the series of daily blogs on financial regulation that I began posting on my first day of Covid wfh, 16 March 2020. I hope you enjoy and find useful...

Last week, the FCA published an updated version of how it applies the Senior Managers Regime (SMR), so it's worth taking another look at how this matches up to the regulators' challenges.

Governance matters for regulators and a stream of reviews - including Equitable Life (Baird Report), market disclosure (Davis) and IRHP (Swift) - has identified lack of a clear audit trail as contributing to regulatory failures.

And the distinction between general responsibility and individual accountability, which is at SMR's heart, was also at issue in the disagreement between Elizabeth Gloster and Andrew Bailey over the failure of London Capital & Finance.

When the FCA last published its SMR map, in January, I wrote a couple of posts - on Specialist Supervision and Firm Supervision - focusing on the complicated accountability within the regulator. In both cases, there is more interdependence between different areas than the FCA/PRA might be comfortable with in regulated firms.

Today, however, I want to focus on the committee system and some of its historic challenges. Many organisations face versions of these, but the regulator's absence of a conventional P&L makes some of them more subjective and consequently more endemic. And the complexity of some regulatory problems, combined with the informality of the FCA's matrix, can easily blur lines of authority and decision making. The resulting frustrations have been a consistent staff complaint, shared by both long-term regulators and new joiners:

(1) Committee remits are quite fluid in practice, and issues can be considered at more than one committee, with sometimes contradictory conclusions.

(2) Thresholds for escalation to ExCo committee level are largely subjective, so more minor issues can appear on agendas and more major ones be decided lower down, leading to later problems.

(3) Not all committees are well-chaired, a particular problem when multiple divisions are involved, and so key voices sometimes go unheard.

(4) At least historically, the relationship between committees and individual senior managers isn't well-defined. This used to muddy the waters of individual accountability.

None of this is easily resolved, but hopefully SMR, together with the recent restructuring, helps simplify governance that, historically, has sometimes felt too much like a labyrinth.

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