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Key themes from PRA briefing to professional advisers on SMR

On Friday 16 October the Prudential Regulation Authority (PRA) gave a briefing for professional advisers, from which emerged a number of key messages for firms. 

This follows the latest announcement that the presumption of responsibility is to be abandoned in favour of a duty of responsibility; that Non Executive Directors are to be brought within the scope of the conduct rules, and that in due course other regulated firms are to be brought within the scope of the regime. 

Speakers were drawn from the PRA's Supervision team and their key messages were as follows:

Good governance 

From the PRA's perspective this is a Supervisory tool rather than an Enforcement regime. Each regulator is taking its own approach, although in any given situation no doubt the PRA and the FCA will collaborate. 

The drivers for the regime were both the banking failures of the last decade and the LIBOR scandal. The senior Supervisors of the PRA consider that poor governance is at the root of all bank failures and this reform is an effort to learn the lessons of history to avoid further problems. It is believed that the requirements of the new regime represent good governance practices and that, in well-run firms, meeting the standards should not be a problem. 

Clear responsibilities

Accountability is viewed as being at the heart of good governance, and therefore the focus on the responsibilities at an individual level will foster an improved governance culture. 

There is concern that some organisations are anticipating a failure to meet the standards and seeking defensive legal advice rather than focussing on putting right problem areas. 

PRA’s approach

The PRA will assess and judge governance based on the conversations that they have with senior management and the firm's appetite for discussions with the regulator. 

Their regulatory approach is to be forward-looking and judgmental; they recognise the diversity of the banking sector and whilst there is a commonality in the approach that they adopt, implementation will be tailored to the individual firm and will be 'subtly different'. 


The PRA will also assess culture: examples of their questions will be 'What do you want it (the culture) to be?' and 'How do you know it is?'. Hallmarks of a bad culture will include passivity, collusion and over-reliance on experts or the executive. Their expectations of the Board are that they will commit substantial time and energy to discharge their responsibilities properly - the days of turning up to the Board meeting for the lunch are, apparently, long gone. 

New and grandfathered applications

The PRA's approach to grandfathering was explained. The obligation on firms will be to submit a grandfathering application confirming existing approved persons and the process will not involve a re-evaluation of 'fitness and propriety'. The PRA will be tracking those firms that routinely fail to respond on time or correctly and their objective is to ensure that all firm's applications are made correctly.

Firms will receive a reminder in January of the deadline of 8th February 2016 when they will also have to submit the statements of responsibility and their responsibilities map. Failure to submit an application on time will result in the firm being in breach of the threshold conditions and losing all their approved persons. 

Flexible for firm difference

In looking at the maps and the allocation of responsibilities, the PRA will recognise the differences in firm's approaches and permit flexibility in configuration. The word limit applied to the statements of responsibility is intended to deter legalese and encourage clarity; the regulator will not accept statements that are too caveated or vague. There should be an opportunity to add context and explanation in free text boxes in the submission. For some responsibilities the content is more standardised than others, such as for the heads of different business areas. 

Regime monitoring

The PRA will monitor the regime through a programme of three yearly firm specific management and governance reviews, thematic work and supervisory feedback. 

In terms of SMR interviews, these will not change significantly. Where the individual is already known to the regulator (in a good way) these are not required, but will be used where the individual is an unknown or has an issue on their CV that needs exploring. The questions asked are 'simple' such as, 'How does the Bank make money?' or 'What are the key risks faced by the Bank?'. New arrivals do not need to have an encyclopaedic knowledge of their organisations, but they do need to demonstrate knowledge of how to unpick and get to the bottom of problems. 

In the discussions regarding the application of the regime to foreign banks, the view was expressed that broadly those who put risk on the balance sheet for UK purposes would be covered and this could include individuals outside the jurisdiction. 

If you would like any further information about this briefing or implementation of the regime, please contact Emily Benson. 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com

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