The UK Treasury has withdrawn its “reversal of burden of proof” provision from the Senior Managers & Certification Regime (SM&CR), which would have put the onus on senior personnel at financial institutions to demonstrate they had done everything in their power to prevent regulatory breaches, rather than requiring the regulator to simply prove evidence of wrongdoing.
However, the rules will require senior managers to take reasonable steps to mitigate regulatory violations. The Treasury’s presumption of responsibility rule had been regarded as troubling and draconian, with many arguing it could deter individuals from taking up senior management functions at financial institutions for fear of regulatory scrutiny, according to a legal brief by Macfarlanes.
The legal brief did, however, argue the updated requirements bore a close resemblance to some of the rules contained within the Approved Persons Regime (APR), which SM&CR is replacing in 2018. SM&CR will, however, apply to banks and investment firms regulated by the Prudential Regulatory Authority (PRA) from March 2016.
SM&CR will be extended to a number of financial institutions including asset managers and mortgage brokers. Unlike the Fair and Effective Markets Review (FEMR) which establishes a civil and criminal market abuse regime for regulatory breaches in the fixed income, commodity and currency (FICC) markets, SM&CR will apply to more financial institutions.
The Treasury’s updated guidance also removes the obligation that firms self-report to the authorities all known or suspected regulatory breaches by employees. “This development will come as something of a relief to the banks, many of which were grappling with the difficult operational aspects of this requirement,” read the Macfarlanes legal brief.
The brief added firms need to ensure their documentation governing internal policies and procedures are updated. It also recommended affected financial institutions set up cross-departmental working groups to coordinate implementation and compliance with the SM&CR.
UK Treasury retreats on provisions in SM&CR
The UK Treasury has withdrawn its “reversal of burden of proof” provision from the Senior Managers & Certification Regime, which would have put the onus on senior personnel at financial institutions to demonstrate they had done everything in their power to prevent regulatory breaches, rather than requiring the regulator to simply prove evidence of wrongdoing.
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