Executives at 47,000 U.K. firms face watchdog burden on eve of Brexit
European politicians say they fear the U.K. will tear up financial regulations after Brexit in a bid to attract business to London. Don’t tell that to executives at 47,000 companies.
From Dec. 9, the Financial Conduct Authority is forcing firms to spell out executives’ responsibilities as a formal matter and put them on the hook for conduct problems on their watch. Money managers with billions of pounds in assets, inter-dealer brokers in derivatives, and consumer-credit firms will all be covered by the new rules, and lawyers and consultants are scrambling to get their clients ready.
The FCA sees itself as leading global regulatory efforts to oversee conduct at financial firms, and there’s little reason to expect backsliding in London anytime soon, according to Sam Tyfield, a partner at the law firm Vedder Price.
“There is no sign that there will be a bonfire of the conduct rules on Brexit,” Tyfield said.
The Senior Managers and Certification Regime — which applied first to banks, and is now being rolled out to smaller firms — is a key part of the FCA’s effort to end what Andrew Bailey, the chief executive officer of the regulator, has called the “light-touch” culture that pervaded finance in the run-up to the financial crisis.
The toughest rules will apply to mortgage lenders with 10,000 or more regulated mortgages outstanding and money managers with 50 billion pounds ($66 billion) of assets under management in a three-year period.
Some of the firms caught up in the directive show the global scope of the British regulator. SoftBank Group Corp. is best known as the Japanese investment firm that put Saudi money into New York-based WeWork, but much of the team that directed that investment works from London at a subsidiary called SB Investment Advisers. In a recent SoftBank presentation, a section on governance highlighted how SBIA is preparing for the senior managers’ regime, indicating it will apply to board members including CEO Rajeev Misra.
Other companies that have mentioned the coming regulation in recent filings including Brewin Dolphin Holdings Plc, the wealth manager with a total of 45 billion pounds in funds; and IG Group Holdings Plc, which allows people to speculate on financial markets through contracts for difference.
Medium-sized firms are typically spending between 10,000 pounds and 50,000 pounds on legal advice and training for staff to get ready, according to one lawyer doing the work. Firms are preparing statements of responsibility for senior managers, reviewing internal governance procedures and ensuring employees have the proper certifications for their jobs.
“This conduct agenda is going to change the way that brokers behave over time -- I think people are slowly getting it,” Jake Green, a partner at Ashurst, a law firm, said in an interview. “For the biggest firms, it’s material.”
Smaller but significant firms have less onerous restrictions. Some firms may seem too tiny, or completely unrelated — like dental and veterinary practices, or car dealerships; however, if they extend any form of credit, they may be covered in a limited way. The regime may also be extended to companies that compile benchmark indexes for stocks and bonds.
Senior executives must have clear job descriptions and statements that spell out their roles, what they’re accountable for in their business and to submit these documents to the FCA. Every senior manager will also have a so-called duty of responsibility, meaning that they could be held accountable if a firm violates the law and if they didn’t take reasonable steps to prevent or stop the breach.
Lawyers don’t expect the situation to change — even if Boris Johnson’s Conservatives shake up the FCA’s management, win a majority in next week’s election, and take that as an endorsement of a more hard-edged stance on implementing Brexit.
“It is not attractive from a political perspective to stand up and say, ‘we want less responsibility in the financial industry,’” Jonathan Herbst, a partner at Norton Rose Fulbright in London, said in an interview. “That is the world of yesteryear.”