24 February 2015
City regulators FCA and PRA have included NEDs under the Senior Managers Regime (SMR), which ‘undermines independence of the role’, according to ICSA.
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have included non-executive directors with specific responsibilities under the Senior Managers Regime – they will be subject to aspects such regulatory pre-approval, the FCA and PRA’s new conduct rules and presumption of responsibility.
The NED roles that will be subject to the SMR include the chairman; senior independent director; and the chairs of the audit, risk, remuneration and nomination committees.
ICSA Research and Policy Director Peter Swabey commented that the proposals ‘fundamentally misunderstand the role of the board, board committees and the decision making process of the board in particular.
Swabey added: ‘Although the FCA must be [satisfied with] the fitness and propriety of all those appointed to the board of a regulated firm, it is quite another thing to make part-time independent non-executive directors responsible for the day-to-day management activities of the firm.
‘Board committees are set up with clear terms of reference to provide more detailed oversight of specific management functions. Neither the committees nor the committee chairmen make decisions. They report to the full board and highlight any areas of concern for discussion and a decision where necessary.’
The FCA states that within the regime, senior executives will be expected to take accountability for the conduct of the business for which they are responsible. This clear line of accountability can have a positive effect on the culture of firms and on outcomes for consumers and markets.
Martin Wheatley, Chief Executive of the FCA, said: ‘Our approach is driven by wanting to ensure firms are managed in a way that reflects good governance and promotes the right culture and behaviours. Having a narrow SMR will also allow the FCA to focus regulatory resources on those responsible for key business areas and board committees.’