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BSB launches consultation on F&P risks and issues draft guidance

The BSB is today (13 July 2017) launching a Consultation Paper on proposed supporting guidance to help firms identify and deal with risks and issues when assessing Fitness and Propriety (F&P). Following this consultation, the BSB will publish final supporting guidance to aid BSB member firms and the sector more widely. The consultation closes on 29 September 2017.

BSB good practice guidance is developed in partnership with its member firms and represents a pooling of knowledge and experience. It does not impose any legal or regulatory obligations but gives firms an idea of what ‘good’ looks like when they are considering their own policies and procedures.

Download the documentation

Consultation paper (PDF 452KB)

Draft guidance (PDF 345KB)

Response template (PDF 419KB)

Response template (editable Word doc)

About this consultation

This Consultation Paper is the product of work by the BSB’s Certification Regime Working Group (CRWG). The CRWG was established in early 2016 to enable BSB members both to learn from each other about implementation of the new Certification Regime and identify areas where consistency of approach could be beneficial.

During 2016, the CRWG focussed on establishing a common understanding of F&P and how to assess it. In February 2017, the BSB published a Statement of Good Practice 1 on Fitness and Propriety Assessment Principles and Supporting Guidance on Fitness and Propriety Definitions, Sources of Information and Assessment Record Template to set out a good practice framework for firms assessing the F&P of their certified staff.

In discussion with the CRWG, the BSB has developed further good practice guidance focusing on the certification decision. This draft guidance is intended to help firms and individuals making certification decisions, especially in cases where the issues are not clear-cut. It includes:

  • factors to consider when evaluating the evidence used in assessing F&P;
  • an overview of the options available to firms in making certification decisions;
  • examples of dealing with certification risks and issues; and
  • good practice in recording the outcomes of an F&P assessment.

This draft guidance draws on a series of discussions with the CRWG. These have explored the processes firms have implemented, the outcomes for individuals following F&P assessments and the outcomes for firms where analysis of F&P assessments indicates a wider risk or issue.

Responding to this consultation

The consultation will be open until the close of 29 September 2017 and we would like to hear views from all organisations and individuals with an interest in this area. This may include firms who employ certified individuals, certified individuals themselves, organisations with an interest in professionalism in the banking sector, professional services firms, customers, clients, investors, consumer organisations and organisations with regulatory experience in other sectors or jurisdictions. The consultation paper contains the specific questions on which we are seeking views, but we welcome comments on any aspect of the draft guidance.

A template is provided for responses, but respondents are welcome to reply in whichever form they prefer by emailing certification@bankingstandardsboard.org.uk. The BSB will not publish responses it receives.

The Certification Regime

The Certification Regime came into force on 7 March 2016 and is part of the strengthened Individual Accountability Regime introduced by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). The Certification Regime applies to approximately 32,000 staff[1] working in roles that could pose a risk of significant harm to their employing firm or its customers and it currently extends to banks, building societies, credit unions, the largest investment banks that are regulated by the PRA and branches of foreign banks operating in the UK. It is designed to support the Senior Managers Regime which captures only the most senior people working in firms.

Under the Certification Regime, firms are required to issue a certificate to staff in high-risk roles[2] on at least an annual basis[3]. Before issuing a certificate to a member of staff for a role, the firm must be satisfied that the person is fit and proper to perform that role.

 

[1] HM Treasury, 2015, Senior Managers and Certification Regime: extension to all FSMA authorised persons https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/468328/SMCR_policy_paper_final_15102015.pdf

[2] The list of significant harm functions that the FCA require certificates to be issued for can be found in the FCA handbook in SYSC 5.2.30: https://handbook.fca.org.uk/handbook/SYSC/5/2.html?date=2016-10-03. The PRA’s expectations of how firms should act when deciding which roles are ‘certification functions’ can be found in Supervisory Statement SS28/15 Strengthening individual accountability in banking on the Bank of England’s website: http://www.bankofengland.co.uk/pra/Pages/publications/ss/2017/ss2815update.aspx

[3] Section 63F(5) of the Financial Services and Markets Act 2000 (as amended) specifies that a certificate is valid for a period of 12 months although the FCA have clarified their expectation that a firm may issue a certificate valid for a period of less than 12 months in FIT 5.2.12: https://www.handbook.fca.org.uk/handbook/SYSC/5.pdf

Senior Managers and Certification Regime

Exploring how the SMCR - and especially Certification - can be implemented in the most effective way across the sector.

The Senior Managers and Certification Regime is a major regulatory change that will affect all banks and building societies. Responding to recommendations by the Parliamentary Commission on Banking Standards, the government and regulators have together developed a comprehensive framework to ensure better accountability and responsibility for behaviour, competence and culture in banks and building societies. The new framework provides an opportunity for the industry to focus on and demonstrate a culture of professionalism. We are working with firms and regulators to facilitate this, including areas where a common approach across firms could support both the objectives of the regime and the skills and development of the people covered by it.

Professionalism

Evaluating whether a more 'professional' approach to banking would improve behaviour and competence across the industry.

The Parliamentary Commission on Banking Standards found that 'banking culture has all too often been characterised by an absence of any sense of collective responsibility to uphold the reputation of the industry', and argued that a greater focus on professionalism could be an answer to this. Working with a leading team at the University of Leeds, we are researching the issues around professionalism in banking. In particular, we are reviewing how professional qualifications are currently used across the sector, and at whether a stronger role for professional bodies, along the lines seen in some other sectors, like medicine or law, would help raise standards. To inform this work and develop a rounded picture of 'professionalism' and what it means in banking, we are surveying banks and building societies, professional bodies and a wide range of other interested groups, including consumer bodies and investors.

Assessments

Providing an honest and impartial assessment to Boards of progress against objectives on behaviour, competence and culture.

The BSB assessment exercise presents Boards with an objective and impartial view of their firm's culture, identifying where things are working well and recommending areas for improvement. It draws on information not only from Boards and senior teams, but also from employees, investors (or members), trade unions, customer groups and other relevant bodies. In doing so, it will provide constructive challenge to each firm individually, while building a collective understanding of common issues across the industry, or sectors within it. We undertook our first annual assessment exercise in 2015 with ten firms (Barclays, Citi, HSBC Bank, Lloyds Banking Group, Metro Bank, Morgan Stanley International, Nationwide, RBS, Santander UK and Standard Chartered). The BSB itself will not publish individual assessment reports - each firm owns its own report - but key themes and messages will be set out in the BSB's annual report, the first of which will be published in Spring 2016. Given that Board engagement is central to the assessment work, only firms that have their headquarters in the UK are eligible for the full assessment exercise. All firms, including branches of firms headquartered overseas, will however be included in a focused membership-wide survey, which will allow each participating firm to benchmark itself against its peer group.

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