Strengthening individual accountability in banking: amendments to notification rules and forms

Consultation Paper 1/16
Published on 06 January 2016

In this consultation paper (CP), the Prudential Regulation Authority (PRA) proposes a series of minor, interim amendments to Forms C, D and L and the Conduct Rules: Notifications Chapter of the Notifications Part in the PRA Rulebook.

This consultation is aimed primarily at banks, building societies, credit unions and PRA-designated investment firms (collectively referred to as relevant authorised persons in the Financial Services and Markets Act 2000 (FSMA) as amended by the Financial Services (Banking Reform) (Act) 2013 (Banking Reform Act).). However, in light of the proposed extension of the Senior Managers and Certification Regimes (SM&CR) to all PRA-regulated firms in the Bank of England and Financial Services Bill (the Bill), the consultation may also be of interest to insurance firms.

Summary of proposals

The aim of the amendments proposed in this CP is to update the PRA’s rules and forms (two of which, Forms C and D, are shared with the Financial Conduct Authority (FCA)) in light of the proposed changes to the SM&CR in the Bill. In particular, the amendments seek to reflect the proposed removal of section 64B(5) of FSMA.

Section 64B(5) of FSMA would have required relevant authorised persons to notify the regulators if they knew or suspected that an individual performing a Senior Management Function (senior manager) or otherwise subject to the regulators’ conduct rules had failed to comply with any such rules.

The similar but separate statutory requirement to notify the regulators of disciplinary action relating to a breach of the conduct rules against the individuals referred to above (section 64C) is expected to remain in FSMA.

The SM&CR will enter into force for relevant authorised persons on 7 March 2016. However, following HM Treasury’s publication of The Financial Services (Banking Reform) Act 2013 (Commencement No. 9) (Amendment) Order 2015, section 64B(5) and the presumption of responsibility in sections 66B(5) and (6) of FSMA will no longer enter into force on that date.

Subject to the outcome of Parliamentary debates on the Bill, sections 64B(5), 66B(5) and 66B(6) may be deleted and, in the specific case of the presumption of responsibility, replaced with a statutory duty of responsibility. These changes would take place only when the Bill receives royal assent, which is expected later this year.

In the meantime, the PRA and FCA are keen to ensure that the forms and rules reflect the fact that the notification requirements in section 64B(5) will not come into force at the same time as the remaining requirements of the SM&CR. The FCA is consulting simultaneously with the PRA on changes to its rules and identical amendments to Forms C and D, which are shared by the regulators, and Form H, which is an FCA-only form.

The PRA has also published a revised version of Supervisory Statement 28/15 – Strengthening individual accountability in banking, which has been updated to take into account the proposed removal of sections 64B(5), 66B(5) and 66B(6).

When the Bill receives royal assent, the PRA will consider whether it should consult on additional, longer-term rules and guidance, including additional requirements to report misconduct.

Appendix 1 contains the draft rules and includes proposed changes to Forms C and D.

Appendix 2 contains proposed changes to Form L.

Responses

This consultation closed on Monday 8 February 2016.

PDFConsultation Paper 1/16 (including appendices)
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