The UK Senior Managers and Certification Scheme is to be extended in 2018 from deposit-takers and larger investment firms to most FCA-regulated firms. Originally, the regime would have imposed a “presumption of responsibility” on senior managers. The burden would have been on managers to show regulators that they had acted reasonably to prevent regulatory contraventions in those parts of the business for which they held responsibility.
As this proposal led to many protests on the basis of unfairness, this principle is now significantly watered down. Instead, there is a statutory “duty of responsibility” on senior managers under which they are accountable if they fail to take reasonable steps (including proper training and oversight) to prevent regulatory breaches in their areas of responsibility. And the burden of proof now rests with the FCA.
In substance, however, this duty is not new. For example, Principle 7 of the Statements of Principle for Approved Persons (APER) already provides that “an approved person performing an accountable higher management function must take reasonable steps to ensure that the business of the firm for which they are responsible in their accountable function complies with the relevant requirements and standards of the regulatory system.”
In 2012, the Upper Tribunal in FSA v Pottage, which looked at senior managers’ responsibilities, held that this Principle was an obligation to “take reasonable steps” to see that a business has compliant systems and controls. And what was meant by “reasonable steps”? It was said to depend on all the circumstances.
So arguably, in practice, the change in the nature of the duty on a senior manager from the existing regulatory regime and the new one is not so great. Of course, what amounts to “reasonable steps” in the view of the FCA, looking at events subsequently, can often be different from the senior manager at the time.