Understanding the Individual Accountability Regime in the UK: What You Need to Know
The Individual Accountability Regime (IAR) or Senior Managers and Certification Regime (SM&CR) is a regulatory framework introduced in the UK by the Financial Conduct Authority (FCA) in 2016. The aim of the IAR is to make senior individuals in the financial services sector more accountable for their actions, strengthening market integrity and restoring public trust.
Introduction:
The IAR was introduced in response to various financial scandals, such as the Libor and forex manipulations, which had severe consequences for the economy. This article will explore the core elements of the IAR and its implications for firms and individuals.
What is the IAR?
The IAR is composed of three main components, namely the Senior Managers Regime (SMR), Certification Regime (CR), and Conduct Rules.
The SMR applies to senior individuals in a company and requires firms to clearly define each senior manager’s role, responsibilities, and accountabilities. The SMR also requires firms to identify the most important functions in their business and assign each function to a senior manager who is accountable to the FCA for ensuring the function is conducted in compliance with regulatory requirements.
The CR applies to individuals who may have a significant impact on a firm or its customers. Firms must assess and certify that individuals are fit and proper to perform their role and update this certification regularly. This includes both individuals who currently have such a role and those who are due to be appointed. The CR also includes the regulatory reference system, which requires firms to share information about an individual’s past performance with their new employer.
The Conduct Rules set out standards of behavior expected of all employees of financial services firms regardless of their role. The rules are divided into two tiers, with the first tier being applicable to all employees, and the second tier applying to senior managers. The Conduct Rules include requirements such as acting with integrity, due care, skill, and responsibility, and treating customers fairly.
Implications for firms:
The IAR has significant implications for firms, particularly in terms of its impact on culture, governance and risk management. Firms need to ensure that their governance structure is appropriate, with clear lines of responsibility and accountability for decision-making. Firms also need to ensure that they have a robust compliance framework in place to identify, manage, and mitigate risks.
The IAR also requires firms to allocate sufficient resources to ensure their compliance with the regime. This includes ensuring all individuals understand their responsibilities, are trained on the Conduct Rules, and are appropriately certified and assessed under the CR.
Implications for individuals:
The IAR has implications for individuals who work in financial services. Senior managers face increased accountability in their roles, including personal liability for regulatory breaches. This means that individuals in senior roles need to ensure that they have a clear understanding of their responsibilities and the Conduct Rules.
Individuals subject to the CR must ensure they maintain their fitness and propriety, including being appropriately qualified, competent, and having a good conduct record. This includes providing details of their fitness and propriety to their employer regularly.
Conclusion:
The IAR is a significant regulatory framework that has been introduced to enhance the accountability of senior individuals in financial services firms. The regime has implications not only for firms, but also for individuals who work in the sector. Firms and individuals need to ensure they understand the requirements of the regime and take appropriate steps to comply with them. By doing so, the IAR will help restore public trust in the financial services sector and strengthen market integrity.
