RegTech Intelligence 
By Sam Tyfield, Vedder Price
Whilst it comes as no surprise that the FCA would like to see a UK branch or subsidiary of an overseas firm managed from within the UK, it is worth reiterating the point given that, in a speech given last month by Clive Adamson, Director of Supervision at the FCA last month, Mr Adamson said (emphasis added):
‘The second area I would like to touch on is the responsibility and accountability of senior management. As I mentioned earlier, it is clear to us that responsibility for setting the tone and culture of the firm sits at the highest levels of any firm.
We recognise that many firms manage themselves on a global basis – from these, we are looking to a balance between global decision-making structures and legal entity considerations.’
This means that the ‘hearts and minds of management’ of the UK branch/subsidiary need to be in the UK. Senior managers based in the UK with (a) responsibility for, (b) power over and (c) experience of the UK business and regulatory regime should make up, if not the majority, then a substantial proportion of the board of the UK firm. Mr Adamson went on to say:
‘We are increasingly looking to understand how leaders and senior managers discharge their responsibilities, focusing their mind through greater use of attestations, and holding them to account for conduct failings. For example, in 2012-13 we took action against 55 individuals, imposed £5m in fines against these individuals and secured 43 prohibitions. This is not to say that these types of investigations are not challenging, not least because industry professionals have a lot to lose if enforcement action is successful.’
Attestations are a relatively new but powerful tool. Each request for an attestation will be different (possibly not unique) and may be addressed to an individual or to the board. No firm should consider responding to or signing an attestation without seeking experienced external advice beforehand. Finally, he said:
‘We are also considering how to operationalise the recommendations of the Parliamentary Commission on Banking Standards (PCBS), which called for the creation of a new Senior Persons and Licensing Regime. The implications of these are profound for deposit-takers and should not be under-estimated. And while it is unclear yet how it will work in practice for banking groups headquartered outside the UK, it is clear that we, as regulators, will be looking even more closely to the role of senior individuals and how they address their regulatory responsibilities.
Ultimately, though, what we want is senior management to demonstrate integrity, role model the right behaviours, challenge where culture is not right, and do the right thing, even when it is hard.’
A link to the Commission’s conclusions is here. Relevant section is Chapter 6 (paragraphs 86 through 116). In their response, the FCA broadly supported a change from the current Approved Person regime to a licensing regime. It states, among other things, that it agrees ‘that a written Statement of Responsibilities for Senior Persons will improve individual accountability and enhance our ability to take action through our Authorisation, Supervision and Enforcement functions.’
This will of course impact firms or clients which are now going through the process of establishing UK operations and making applications to the FCA for them, and it will impact those who will shortly need to take the decision as to whether to do so (under MiFID II). Mr Adamson gave a hint as to how the supervision of firms will operate in practice when he said:
‘[f]rom a supervision perspective, we are looking more closely at the business models of firms to understand further the key drivers of conduct behaviours. This is based on a range of data, including financial data across peer groups, and allows us to identify and prioritise the firms that pose the greatest risk to our objectives and allocate resources accordingly. This analysis also gives us the ability to understand whether there are common issues affecting a range of firms and determine whether we should conduct specific pieces of thematic work.’
This is relatively positive news for proprietary trading firms given the FCA’s and PRA’s focus on retail, wealth management and wholesale products and providers. But it is not out of the question that any firm (or group of firms) which present a systemic risk, so far as the FCA is concerned, will not be a separate priority.
The common thread emerging is one of individual responsibility.
As I understand it, the UK Government’s current proposal is to limit the licensing regime to those who work in deposit-taking institutions and the timetable for a law is not certain (at least to me) but the FCA does say that even if that is the case, it will explore any changes it feels it should make to the Approved Person regime generally.
And who knows – perhaps we will see a new MiFID II draft pre-Christmas, too.