Revisiting your conduct rules implementation? Here’s how.
The UK regulators continue to scrutinise firms’ implementation of the conduct rules, as an essential element in the promotion of good conduct and culture. It’s been almost two years since the Financial Conduct Authority (“FCA”) published the Senior Managers and Certification Regime (“SMCR”) Banking Stocktake Report in August 2019, in which it reported on how successfully banking firms had implemented the SMCR.
A key finding of the FCA’s review was how the SMCR conduct rules have been embedded. In summary, the FCA found:
- firms not always sufficiently tailoring their conduct rules training to particular staff’s job roles;
- firms unable to explain what a conduct rule breach looked like in the context of their business;
- inconsistencies with recording of conduct rule breaches by firms;
- insufficient evidence that firms had clearly mapped the conduct rules to their values; and
- weaknesses in the implementation of conduct rules to staff below senior manager level.
As a result, the FCA indicated that it intended to increase its scrutiny of firms’ approach to training on conduct rules and reporting on breaches of the conduct rules. A similar concern regarding the level of conduct notifications was picked up in the PRA’s more recent review of SMCR implementation, published in December 2020. Given this focus, firms, including solo-regulated firms who entered the SMCR in December 2019, should think carefully about whether their implementation of the conduct rules is hitting the mark.
We set out below and in the infographic here prompts for firms to use in considering how effective their implementation of the individual conduct rules has been.
Conduct rules
Governance/oversight
- Does management information provide a clear view of conduct rule breaches to spot trends for further training?
- Are failings/near misses in conduct rule processes reported? Is there a process for lessons learned?
- Which governance forum oversees conduct rule breaches? Is this aligned to the Senior Manager with the prescribed responsibility for conduct rule reporting?
Escalation
- Are managers trained to spot conduct issues?
- Is the consideration of conduct issues well documented (e.g. policy and governance minutes)?
- Have we undertaken a look back exercise to assess adequacy of escalation arrangements?
- What learnings do we have from HR grievances/exit interviews?
Reporting
- Have we undertaken a benchmarking exercise of previous decisions (report and “near misses”) to assess consistency?
- How do we balance reporting obligations to regulators and fairness to the individual?
- Which individuals do we involve in the process of reporting?
- Have we reported breaches on time? If not, why not?
Training
- Have we articulated what a conduct rule breach looks like for our business?
- What does staff survey results and training feedback tell us about conduct rule training?
- Have we established testing/questions that are specific to individual roles?
- Do we update training regularly to reflect real life conduct issues?
Values
- How do conduct rule expectations align with our values?
- Do our values reflect the FCA’s minimum conduct requirements?
- Have we assessed how conduct issues (including determined and near misses) have been fed into promotion and remuneration decisions?
How we can help
Our team has a wealth of experience advising banks, insurers, asset managers and other financial services providers on SMCR post-implementation issues, including the successful implementation of the conduct rules. Our deep market knowledge of how the conduct rules have been implemented across the industry and the sorts of conduct rule breaches that are typically reported to regulators, means that we are well positioned to advise firms on their approach, review their framework for compliance and provide benchmarking against peer firms.
If you would like to find out more about how Linklaters can help you, please feel to get in touch with any of the key contacts listed.
