Understanding the Individual Accountability Regime: A Comprehensive Guide to Conduct Rules
The Individual Accountability Regime (IAR) was introduced in 2016 by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) to ensure better conduct and prevent misconduct in financial services. It holds accountable individuals who hold senior positions for their actions and decisions. The IAR comprises a set of rules and regulations known as Conduct Rules.
Conduct Rules apply to individuals carrying out specific roles in financial services companies. These roles are split into two categories: Senior Manager Functions (SMFs) and Certification Functions (CFs). SMFs are significant decision-making positions, such as CEOs, CFOs, and other executives. CFs include employees who play a significant role in regulated activities, such as traders or portfolio managers.
In this comprehensive guide, we’ll cover the following topics:
Conduct Rules and Their Objectives
The Conduct Rules are a set of principles that aim to ensure that individuals in financial services firms act with integrity, due skill, care, and diligence. The rules are designed to promote a culture of responsible behavior across the industry, and their overarching objective is to prevent harm to consumers and financial markets.
Examples of Conduct Rules
The Conduct Rules are divided into two tiers. Tier one rules apply to all individuals covered by the regime, while tier two rules apply only to SMFs. Some examples of Conduct Rules are:
– Tier one rules:
– You must act with integrity.
– You must act with due skill, care, and diligence.
– You must be open and cooperative with regulators.
– Tier two rules:
– You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
– You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with relevant laws and regulations.
What Happens When Individuals Breach the Conduct Rules?
Breaching the Conduct Rules can have severe consequences for individuals. The FCA and PRA have the power to take disciplinary action against individuals who breach the rules, ranging from fines to lifetime bans from working in the regulated sector.
The Senior Managers and Certification Regime (SMCR)
The SMCR is an extension of the IAR that applies to all financial services companies. It ensures that all senior individuals in financial services firms are accountable for their actions, regardless of their role or job title.
The SMCR requires firms to identify senior individuals and assign them specific SMFs. These individuals must then be approved by the FCA or PRA before they can take up their roles. Firms must also ensure that employees in CF roles are fit and proper to perform their role and must certify this annually.
Conclusion
The IAR is a vital tool in ensuring responsible behavior and preventing misconduct in financial services. The Conduct Rules and SMCR provide the framework for holding individuals accountable for their actions and decisions. It is essential to understand the rules and how they apply to individuals in different roles to ensure compliance and prevent disciplinary action by regulators.
