Strengthening accountability

Latest strengthening accountability updates

7 January 2019: The PRA published a note that clarifies the interaction between the PRA’s and FCA’s proposals for applying the Senior Managers and Certification Regime (SM&CR) to firms in the temporary permissions regime (TPR). In particular, this note includes a set of Frequently Asked Questions (FAQs) on how the two sets of proposals would apply to dual-regulated, EEA firms currently operating in the UK via an establishment passport through a branch (‘EEA branches’).

10 December 2018: The Senior Managers and Certification Regime (SM&CR) has been extended to insurers. The extension is being introduced through the application of the Commencement regulations that have been published by HM Treasury for the relevant amendments to the Financial Services and Markets Act 2000 (FSMA) in the Bank of England and Financial Services Act 2016. To reflect the extension, all references to ‘Senior Insurance Managers Regime (SIMR)’ and ‘Senior Insurance Management Function (SIMF)’ have been amended to ‘Senior Managers and Certification Regime (SM&CR)’ and ‘Senior Management Function (SMF)’ respectively.

Updated forms to reflect the extension are available on the Senior Managers Regime: approvals page.

For more details on the extension, please see PS15/18 ‘Strengthening individual accountability in insurance: Extension of the SM&CR to insurers’ and SS35/15 ‘Strengthening individual accountability in insurance’. The FCA has also updated its website to reflect the extension.

Senior Managers and Certification Regime

The Senior Managers and Certification Regime (SM&CR) is intended to support a change in culture at all levels in the banking and insurance industries. The SM&CR was developed as part of the implementation of the recommendations in the final report of the Parliamentary Commission on Banking standards. The SM&CR was rolled out to banks in March 2016 and in December 2018 the regime was extended in full to insurers, replacing the Senior Insurance Managers Regime (SIMR).

The SM&CR comprises the following mutually supporting elements:

• Senior Managers Regime (SMR): the most senior decision-makers, or Senior Managers, at the firm must be assessed as fit and proper, have clearly defined responsibilities and be subject to enhanced conduct requirements, including the duty to take reasonable steps in fulfilling their responsibilities.
• Certification Regime: for key risk-taking employees below the top tier, firms need to determine on appointment and then certify annually that they are fit and proper to undertake their roles.
• Regulatory references: as part of the hiring process for senior decision makers and key risk-taking employees, firms must exchange mandatory employment references, containing information on prior conduct.
• Conduct Rules: all financial services staff are subject to minimum conduct standards requiring, among other things, that they act with integrity and due skill, care and diligence.

Corporate governance

Corporate governance: board responsibilities - Supervisory Statement 5/16 identifies, for the boards of firms we regulate, the aspects of governance to which we attach particular importance and to which we may devote particular attention in the course of firm supervision. It is not intended to provide a comprehensive guide for boards of what constitutes good or effective governance. There are more general guidelines for that purpose, for example the UK Corporate Governance Code, published by the Financial Reporting Council.

As set out in our supervisory approach documents, we expect the boards and management of regulated firms to run the business prudently, consistent with the firm’s own safety and soundness and the continuing stability of the financial system.

Our expectations of the collective responsibilities of directors and our policy (requirements and expectations) of individuals should be interpreted as being complementary.

On Friday 12 August 2016, we issued a letter to the chairs of banks’ boards reminding them of the important role that diversity plays in promoting good governance, and the obligations on firms in this area.

Firms should also see Chapter 3 of  PS1/18 ‘Strengthening accountability in banking and insurance: optimisations to the SIMR’ which sets out requirements to strengthen governance through requiring insurers to take steps to encourage board diversity.

Key policy

For an overview of the accountability regimes and our expectations of firms, both at individual and board level, please see our key policy documents:

• Strengthening individual accountability in banking - SS28/15
• Strengthening accountability in insurance - SS35/15
• Corporate governance: board responsibilities

Remuneration

Remuneration rules for banking

Our remuneration rules set out the standards that banks, building societies and designated investment firms have to meet when setting pay and bonus awards for their staff. It aims to ensure that firms' remuneration practices are consistent with effective risk management.

Remuneration - Supervisory Statement 2/17 sets out our expectations of firms in relation to proportionality, the application of malus and clawback, other elements of remuneration, and additional expectations of firms. This supervisory statement is intended to be read together with the rules contained in the Remuneration Part of the PRA Rulebook.

Applying to vary a proportionality level

A firm or group that believes it should fall into a lower level than the one indicated in Chapter 2 of Remuneration - Supervisory Statement 2/17 may apply to us for individual guidance to vary its proportionality level.

The application will need to be supported by sound reasons explaining why you think a variation in your firm’s proportionality level is justified, with reference to remuneration proportionality rule 5.1 in the PRA Rulebook. Once we have received this information we will determine whether to give your firm guidance to move into a lower level.

To apply to vary your firm’s proportionality level, you should:

1. Identify the firms within your group that the remuneration rules apply to directly and determine which proportionality level they fall into, based on Chapter 2 of Remuneration - Supervisory Statement 2/17.
2. Prepare an application for individual guidance using the relevant application template  below if you believe that a solo firm, the group, or an entity within the group should fall into a lower level than the proportionality level determined by the criteria set out in Table B of Chapter 2 of Remuneration -Supervisory Statement 2/17.
3. Provide a separate request for each legal entity for which you are requesting individual guidance.
4. Email completed application(s), supporting documents and all relevant contact details to remuneration@bankofengland.co.uk. You should copy in your usual supervisory contact where relevant.
5. Be prepared to supply further information, if requested.

Application templates

We have three separate application templates tailored to the three most common types of request. This helps facilitate a consistent decision-making process and to help firms understand the type of information we may require when deciding whether to issue individual guidance. If your request does not fit one of these scenarios, you should contact your usual supervisory contact.

We will not charge firms for making these applications.

If you are applying for individual guidance to change your firm’s proportionality level, you should continue to apply the remuneration rules as relevant for your current proportionality level until we notify you of our decision.

You should not assume that applications to change proportionality level will be accepted.

For groups only: application to move an IFPRU limited license firm engaging in asset management activities from the group level into level 3

Template A

For groups only: general application to move a firm from the group level into a lower level (excluding IFPRU limited license asset management firms)

Template B

For standalone firms or firms that are the only firm directly caught by the remuneration rules in the group: general level change application

Template C

After we receive your application

Once we receive a complete application, we will:

1. Log and acknowledge it.
2. Discuss the application with your supervisor and other relevant PRA areas.
3. Prepare the application for review at the appropriate decision-making forum.
4. Inform you of the decision, providing the key reasons for that decision.

We will attempt to process applications and provide a decision within 30 working days of receiving it. However, if the request raises complex issues, it may not be possible to meet this deadline. To allow enough time for us to consider applications, firms should submit applications well in advance of the performance year end.

We will not make our decisions public. If we are minded to decline, we will send you details of the reconsideration process.

Self-assessment templates and tables

Our remuneration policy statement (RPS) templates allow firms to record remuneration policies, practices and procedures and assess compliance with the remuneration rules. The RPS tables allow firms to keep a record of all Material Risk Takers identified for the current performance year.

CRD IV data collection on remuneration practices

CRD IV: Data collection on remuneration practices – Policy Statement 11/14 sets out the remuneration data reporting requirements for the PRA Rulebook. We are required by the Capital Requirements Directive to collect information on:

• remuneration benchmarking
• high earners.

Firms are required to submit their Benchmarking Report and High Earners Report via the regulatory reporting system GABRIEL.

• Instructions for completing the High Earners Report (PDF)
• Instructions for completing the Benchmarking Report (PDF)

Remuneration requirements for insurance

On 1 January 2016, the remuneration requirements in the Solvency II Regulation became directly applicable to Solvency II firms. National competent authorities are expected to ensure that Solvency II firms are compliant. We intend to monitor compliance with the regulatory requirements in the same way that we do for PRA rules.

Solvency II: Remuneration requirements - Supervisory Statement 10/16 clarifies our expectations of how Solvency II firms should comply with the key Solvency II remuneration requirements such as identification of Solvency II staff (Article 275(1)(d)), deferral (Article 275(2)(c)), and performance measurement (Article 275(2)(b), (d) and (e)). 

On 29 November 2017, we published an updated Remuneration Policy Statement (RPS) reporting template for PRA Category 1 and 2 firms for the 2017 performance year to demonstrate compliance with the requirements, together with the Solvency II staff table. Firms do not need to send us a copy of the RPS unless requested to do so.

Whistleblowing

We have published two sets of policy which sets out our rules and expectations in relation to whistleblowing in firms.

On 6 October 2015 we published PS24/15 ‘Whistleblowing in deposit-takers, PRA designated investment firms and insurers’ and SS39/15 ‘Whistleblowing in deposit-takers, PRA designated investment firms and insurers’ that set requirements that:

• firms establish internal whistleblowing channels and inform their staff about these arrangements
• firms inform their staff about the whistleblowing services of the PRA and the FCA, as well as informing them of the legal protections offered under the Public Interest Disclosure Act 1998 (PIDA)
• wording in employment contracts and settlement agreements should not deter staff from whistleblowing.

In addition, on 26 April 2017 PS8/17 ‘Whistleblowing in UK branches’ set out requirements on:

• UK branches of non-EEA banks and both EEA and non-EEA insurers to inform their workers about the PRA and the Financial Conduct Authority (FCA) whistleblowing services
• any non-EEA deposit-taker with both a UK branch and UK subsidiary which is subject to the existing whistleblowing rules, to inform the UK branch staff about the subsidiary’s whistleblowing channel. This proposal did not apply to insurers.

We encourage firms to consider setting up appropriate internal procedures that will encourage workers with concerns to blow the whistle. It is our policy to encourage whistleblowers to use the procedures in their own workplace, but they may contact us instead if they think their employer: 

• will cover it up
• would treat them unfairly if they complained
• hasn’t sorted it out and they’ve already told them.

Further information

Find out more about the PRA’s approach to supervision, and read about strengthening accountability in the PRA Annual Report and Accounts 2016/17, which also includes the Business Plan 2017/18.

Please see The National Archives for any material not available on this page.

The National Archives

Strengthening accountability news and publications