Andrew Pullman explores the serious people challenges for all financial institutions facing the new senior management rules and regulations in 2018
A New World
From 2018, the Conduct Rules laid out in the Senior Managers Regime will apply to all financial institutions – we are expecting further details in June 2017. This is an expansion of the current regime for the banks and insurance companies to which it currently applies. The introduction of a culture of individual responsibility is a significant change and it presents a major challenge to the businesses it will affect.
When the responsibility is placed on people, businesses need to ensure that all their staff are appropriately informed and involved (or they run the risk of breaching rules and triggering disciplinary and regulatory sanctions). It is vital that Senior Managers help the people they manage get to grips with the new rules by providing practical training and introducing systems and processes to help manage the process.
Providing a Guide
As the SMR was introduced throughout the banking and insurance industries, one common approach was to run workshops on “Culture, Values and Regulation” or similar designed to integrate the new regime into affected businesses and organisations and (equally importantly, to be seen to do so).
At the heart of the new culture are the core 5 rules themselves, which are as follows:
- Rule1: You must act with integrity
- Rule 2: You must act with due skill, care and diligence
- Rule 3: You must be open and cooperative with the FCA, the PRA and other regulators
- Rule 4: You must pay due regard to the interests of customers and treat them fairly
- Rule 5: You must observe proper standards of market conduct
In order to fully understand the rules and the manner in which they are to be applied to everyday work, it is important to provide staff with an overview, not just explaining what the accountability regime is, but also why this is happening and what the intended purpose is. You can then use a series of scenarios to bring the rules to life for everyday work.
From a broad examination of the regime, participants are then able to identify the key features of the required culture as it will apply to them and, crucially, how these differ from the past.
Rules are a framework designed to be rigid. However, the businesses and organisations they are to be adopted by will be varied, with subtle but important operational differences. This is why it is vital to understand how the new regime will work at your organisation – firms will need to create a compliant system which will uphold the values and purpose of the rules within a familiar framework yet also not interfere with the smooth running of business.
One way to test these systems and ensure that participants are able to apply the rules in the real situations they will be facing is to use scenarios as part of the training – where possible, drawn from real-life case studies. The ultimate aim would be for delegates to use the understanding and experience of the session to create personalised action plans they can immediately implement when they return to their work.
The regulators have stated that their extended regime will be ‘clear, simple and proportionate’. The difficulty comes with the integration of these “clear and simple” rules into complex organisations and the scope for discovering at that time that the regulators’ after-the-event views of what would have been proportionate in any given case do not necessarily accord with yours.
Andrew Pullman is Managing Director of People Risk Solutions, a Human Resources consultancy specialising in culture, values and regulation in financial services.