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25 May 2023

Individual Accountability in Financial Services – Where to Next?

It has been 10 years since the Parliamentary Committee on Banking Standards recommended greater individual accountability in the banking sector. As of 30 March reform is back on the agenda. Partner in our Dispute Resolution Team Paul Dorrans tells the story.

Almost ten years since the initial recommendation from the Parliamentary Committee For Banking Standards for greater individual accountability in the banking sector, and nearly 8 years from the introduction of the FCA and PRA’s Senior Manager and Certification Regime (SMCR), reform is once again on the agenda.

A review of the SMCR was announced on 30 March 2023 by the FCA and PRA, with a related call for evidence from HM Treasury.  Responses are due on 1 June 2023.  The review was initially announced as part of Chancellor Jeremy Hunt’s Edinburgh Reforms in December 2022, a set of reforms intended to drive growth in the UK’s financial services sector following the country’s departure from the EU.


The SMCR was introduced in 2016 following the global financial crisis as part of a wider set of measures to improve culture and conduct within the banking sector.  The regime was subsequently extended in 2019 to almost all regulated financial services firms and now forms a central feature of the FCA and PRA’s approach to supervision.

At its heart, the SMCR was designed to make it easier to identify relevant individual decision-makers and to hold them to account.  The difficulty in identifying responsible decision-makers operating within complex (and often incomplete) matrix reporting structures was a long-standing issue for regulators and internal compliance functions carrying out regulatory and internal investigations.

The SMCR was designed to address this and other connected conduct issues by ensuring that financial services professionals are individually accountable to their employers and regulators.  A core requirement of the SMCR is that the most senior decision-makers in regulated firms should be fit and proper for their roles and take reasonable steps in the execution of their duties.

The introduction of the SMCR placed the UK in a leading position in its approach to individual accountability.  Similar (although arguably lighter-touch) models were subsequently implemented in other financial centres such as Hong Kong and Singapore.

What’s under review?

The FCA and PRA are now reviewing “the effectiveness, scope, and proportionality” of the SMCR to identify ways to ensure it works better for firms and regulators, while preserving its underlying aims, namely, reducing harm to consumers and strengthening market functioning.  HM Treasury has issued a Call for Evidence alongside the discussion paper from the FCA and PRA.  HM Treasury will work with the FCA and PRA on the review, with HM Treasury examining the legislative aspects, while the FCA and PRA consider the operational aspects and rules.

The FCA and PRA seek answers from the market on specific questions about the SMCR by 1 June 2023.  We highlight several of these below which indicate the overall focus of the review:-

1.      Has the SMCR made it easier to hold individuals to account and improved conduct within firms?

2.      Do the fitness and proprietary requirements support the appointment of suitably qualified individuals?

3.      Does the prospect of enforcement promote individual accountability?

4.      Are there actions the regulators could take in respect of the SMCR that would help enhance competition or international competitiveness?

5.      Do the Statements of Responsibilities and Management Responsibilities Maps help to support individual accountability?

6.      Is the Certification Regime effective in ensuring that individuals within the regime are fit and proper for their roles?

What changes are likely?

The political and market context in which the review is taking place cannot be ignored.  The government is said to believe that broad support exists for the principles and objectives which underpin the SMCR.  While the market appreciates the need for sound regulation to support the long-term success of London’s financial services sector, the temptation for some to advocate for reform to the breadth and coverage of the SMCR, and in particular, those aspects which arguably go beyond its core focus of managing risk, will be strong.

That said, given the number of successful direct enforcement actions against senior managers remains very modest, notwithstanding the reasonably frequent but generalised criticism of management failures in enforcement notices, the incentive for firms to press for anything more than marginal efficiency reform appears low.  That is particularly so when weighed against the significant management time and business costs incurred to implement the internal systems necessary to support the initial introduction of the SMCR, which would need to be updated in response to any significant reforms introduced following the review.

These factors, when taken together with the dearth of flotations and subdued activity across London’s capital markets in general – amidst concern in some sectors about the City’s ongoing international competitiveness – suggest that there is little appetite to embark on a significant tightening of regulatory standards.  Equally, the likely costs and political distraction which would arise from a weakening of standards makes that outcome appear similarly unlikely.  Marginal reforms to achieve efficiency savings relative to the SMCR’s peer competitor models in other financial centres – rather than substantive and revolutionary changes – seems the more likely way forward here.  Submissions from the market of that nature are, in our view, more likely to receive a positive reaction from HM Treasury and the regulators than proposals that would require far-reaching revisions to the core principles of the SCMR.


This is the first full review of the SMCR since its introduction.  Its outcome will likely shape the future of the UK’s approach to individual accountability in the financial services sector for the foreseeable future.  While we can only speculate as to how the review will develop, in our view, there is limited appetite for substantive reform.

Such reforms as are introduced will likely be limited to the efficient operation of SMCR, particularly where such reforms can be said to enhance the City’s international position relative to its competitors.  Wholesale change seems unlikely.  But that, of course, is a matter for the regulators to determine in consultation with HM Treasury after considering responses from the market.

Your regulators will be listening to your concerns, at least until 11:59pm on 1 June 2023.