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.

Latest strengthening accountability updates

7 April 2022: We have updated the inventory of senior manager responsibilities to include references made to senior manager responsibilities in PRA publications since its publication (in December 2021). The cut-off date for inclusion in this document was 31 March 2022, 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.

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.

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.

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.

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; and
• high earners

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

• 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 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 2019 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