Strengthening accountability

Overview

In order to promote individual responsibility and accountability, ourselves, along with the Financial Conduct Authority (FCA) and HM Treasury, developed the Senior Managers and Certification Regime (SMCR) which applies to all PRA-regulated firms. The SMCR promotes the safety and soundness of regulated financial services firms and financial stability by strengthening the link between seniority and accountability.

We have additional measures to improve decision-taking and enhance prudent risk-taking and accountability. 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. The aim is to enhance accountability and promote the safety and soundness of PRA firms by ensuring that firms' remuneration practices are consistent with effective risk management.

Prudential and Resolution Policy Index related links

• Banking - Governance and SMCR
• Insurance - Governance and SMCR

Latest strengthening accountability updates

9 November 2023: We have updated the inventory of senior manager responsibilities to include references made to senior manager responsibilities in PRA publications since its publication (in June 2022). The cut-off date for inclusion in this document was 6 November 2023, and it does not replace/amend any PRA publication nor remove the need to review relevant PRA publications. Stakeholders should continue to refer to the original publications or the PRA Rulebook, and should not regard the inventory as an exhaustive list.

30 March 2023: We published DP1/23 – ‘Review of the Senior Managers and Certification Regime (SM&CR)’, which reviews the effectiveness, scope, and proportionality of the regulatory regime. The DP closes on Thursday 1 June 2023.

27 February 2023: We published – CP5/23 – ‘Remuneration: Enhancing proportionality for small firms’, which proposes changes to current rules and expectations to enhance the proportionality of the remuneration requirements which apply to small CRR firms and small third-country CRR firms’. The CP closes on Tuesday 30 May 2023. The FCA's CP closes on 9 June 2023.

10 February 2023: We published PS1/23 – ‘Remuneration: Unvested pay, Material Risk Takers and public appointments’, which updates expectations regarding changes to the instruments or claims that comprise unvested, deferred sums awarded to Material Risk Takers (MRTs) as part of their variable pay. 

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.

The ‘Evaluation of the Senior Managers and Certification Regime (SM&CR)’ report, published in December 2020, confirmed that the introduction of the SM&CR has significantly improved individual accountability across PRA-regulated firms, with the new fitness and propriety requirements supporting higher professional standards. The accountability that results from the SM&CR is one element contributing to safety and soundness within firms, and the PRA is committed to using the regime to deliver its supervisory priorities. In order to achieve this, it has increasingly referenced the SM&CR in its publications, asking firms to assign responsibility for new and emerging risks to Senior Managers. Since these responsibilities often go above and beyond those located in the PRA Rulebook, as identified in the report, stakeholders have provided feedback that it would be useful to have an inventory of references to senior manager responsibilities made in PRA publications that are not directly related to individual accountability. The inventory below looks to respond to this feedback. The inventory will be updated periodically but it does not replace or amend any PRA publication, nor does it remove the need to review relevant PRA publications. Stakeholders should continue to refer to the original publications or the Rulebook, and should not regard the inventory as an exhaustive list.

• Inventory of PRA publications referring to Senior Manager responsibilities (XLSX)

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.

Diversity and inclusion

On 25 September 2023 the PRA published a consultation paper (CP) CP18/23 - Diversity and Inclusion in PRA-regulated firms. The CP is relevant to PRA-authorised banks, building societies, PRA-designated investment firms, and insurance firms (including third-country branches) subject to CRR or Solvency II. The proposals in this CP ask all in-scope firms to understand their firm's D&I position, develop appropriate strategies to make meaningful progress using data-based evidence, and monitor progress. Larger firms will be required to set their own D&I targets, provide data to the regulators and publicly disclose their D&I ambitions and progress. The consultation period closes on 18 December 2023.

On 7 July 2021, the PRA, FCA and Bank of England published a discussion paper (DP) ‘Diversity and inclusion in the financial sector – working together to drive change’. The DP aims to engage financial firms and other stakeholders in a discussion on how we can accelerate the pace of meaningful change and what role we can most usefully play to support this change. In October 2021, we also sent a voluntary pilot survey to all PRA and FCA dual-regulated firms with the aim of understanding how different types of firms are currently approaching diversity and inclusion. We used the responses to the DP and pilot survey to help develop the proposals within the Consultation Paper.

On Wednesday 4 March 2020, we published a letter on ‘PRA rules on board diversity’ to the Chairs of Solvency II insurers, large non-Directive firms and CRR firms from David Bailey, Executive Director of International Banks Supervision; Anna Sweeney, Executive Director of Insurance Supervision; Charlotte Gerken, Executive Director of Insurance; and Sarah Breeden, Executive Director of UK Deposit Takers Supervision. This letter aims to reinforce the importance the PRA places on diversity for improving decision-making and providing effective challenge, and is a reminder of the requirement to comply with PRA rules in this area. We last sent a letter to Category 1 Credit Institutions and designated investment firms in August 2016 reminding them of the important role that diversity plays in promoting good governance.

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.

In 2023, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) consulted in parallel on proposed rules and expectations aimed at improving diversity and inclusion in regulated firms. In light of the broad range of feedback received, expected legislative developments and to avoid additional burdens on firms at this time, the FCA and PRA have no plans to take the work further.

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 - SS5/16

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.

Data collection on remuneration practices

Chapters 17 and 18 of the Remuneration Part of the PRA Rulebook set out the remuneration data reporting requirements. We are required by the Capital Requirements Directive to collect information on:

• remuneration benchmarking; and
• high earners

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

Guidance on how to report data can be found in:

• COR014 (PDF)
• COR015 (PDF)

Note on submitting COR015 Remuneration High Earners

On 15 December 2021, the PRA issued a statement on COR015 'Remuneration High earners' which can be found in the guidance on changes to banking reporting requirements. The guidance indicated that firms with a year-end date on/after Saturday 1 January 2022 are expected to submit the XBRL reportable template Remuneration High Earners. This remains valid for future performance years. 

It has come to our attention that not all firms are aware of the change. 

We ask all firms with high earners to make the necessary arrangements to acquire an XBRL licence and hence comply with the reporting requirements. 

We ask all firms with no high earners (i.e. a nil return) that have already purchased XBRL to report via the system. This is the PRA preferred solution. 

However, it is our desire to adopt a proportionate approach, hence although we encourage firms with no high earners that have not purchased XBRL yet to acquire it, we may also accept email submissions. Please email Remuneration@bankofengland.co.uk, copying your remuneration supervisory contact to confirm a nil return with subject line ‘high earners – nil return – [firm name + FRN]’. Please specify whether you are reporting on an individual or group basis, and if the latter please list all sub-entities in the body of the email. 

When filling in the templates, please follow closely the requirements presented in Chapter 18 of the Remuneration Part of the PRA Rulebook.  

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 9 May 2019 we published an updated Remuneration Policy Statement (RPS) reporting template for PRA Category 1 and 2 firms for the 2018 performance year for Category 1 and 2 firms to demonstrate compliance with the requirements, together with the Solvency II staff table. Firms in scope have been asked to submit a copy of their RPS for their most recent reporting period to BEEDS as an Occasional Submission by 31 July 2019.

For the 2021 performance year, firms are not required to submit a copy of their Remuneration Policy Statement. However as per SS10/16 ‘Solvency II: Remuneration requirements’, firms are reminded that the PRA expects firms to keep a record of their assessment criteria applied and the final list of staff identified as Solvency II staff for each performance year.

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.

Strengthening accountability news and publications