UK’s Financial Conduct Authority calls for greater responsibility
The UK’s Financial Conduct Authority (FCA) has set out its plan for improved banking standards and financial services with its new “Senior Managers and Certification Regime”.
In a speech “Culture in financial institutions: it’s everywhere and nowhere” delivered today (16 March) by Andrew Bailey, FCA chief executive, to the Hong Kong Monetary Authority (HKMA) Annual Conference for Independent Non-Executive Directors in Hong Kong; he says the post-financial crisis world has led to this certification regime.
Bailey says: “In the UK, following the recommendation of the Parliamentary Commission on Banking Standards, we have introduced for banks and insurers, and will do so shortly for other financial services firms, the new Senior Managers and Certification Regime.”
The idea is to bring responsibility and accountability; and “senior managers should know what they are responsible for, as should key board members and the map of responsibilities should go right across the firm”.
You could argue they should know already.
The certification element of the regime applies to more junior staff who are “nonetheless risk takers” and the process of certification is overseen by senior managers in firms.
Bailey states: “It is therefore their responsibility to ensure it works, and the regulators take a keen interest in the working of this regime.”
Elsewhere in his speech, Bailey mused on firms’ culture, trust, incentives and bankers’ salaries
He asked: “How do we restore the public’s trust in the financial system in the light of all the problems that have been revealed in the last decade?”
Before you say sack all the bankers, Bailey calls for “good culture” and “the tone from the top”.
His answer is for the incentives they create; the quality and effectiveness of risk management; and the willingness of people throughout the organisation to enthusiastically adopt and adhere to the tone from the top. That adherence is crucial, according to Bailey.
In terms of bankers’ remuneration, Bailey delicately trod through history to point out that there used to be a “broad cultural aversion to high pay”.
But in a very roundabout way he got his point across: “Variable remuneration cannot be paid if a firm does not have adequate capital resources.”
It was a long speech and it would have been simpler to say bankers get paid too much and can you please stop.
However, Bailey says the “approach is not to cap the level of remuneration, but rather to act on the structure of it and the incentives created. As financial regulators, we do not seek to control the level of pay, outside its impact on our public policy objectives. But, the influence that we do have will affect the culture of firms. That is intended”.