Why the SMCR won’t work

Regulators have notoriously struggled to pierce the ‘accountability firewall’ and hold senior individuals to account for egregious failures at our major financial institutions. The Senior Managers and Certification Regime tackles the problem of ill-defined responsibilities, which so often has enabled individuals to dodge charges of personal culpability. But is the issue with the rulebook or its implementation? And will the new regime still allow senior staff to pass the buck to their underlings and claim that they took all ‘reasonable steps’? Adam Samuel argues that the Senior Managers Regime and COCON change nothing except the volume of paperwork.

Adam SamuelBA LLM DipPFS MCISI FCIArb Certs CII (MP&ER) Barrister and Attorney may be contacted atadamsamuel@aol.com.For links to where you can buy the second edition of ‘Consumer Financial Services Complaints and Compensation’, see www.adamsamuel.com/book.

There is something of a regulatory tradition in the United Kingdom that when a regulator makes a big deal out of something being the next centrepiece of regulation, one can be assured that it will not work. Think back to the ARROW approach to assessing the risks posed by firms and the capital required to deal with them, and ask whether that worked in 2008 or at any other time. Recall the introduction of the Approved Persons Regime, the ancestor of the Senior Managers idea. That was going to make senior managers accountable. Indeed, the Financial Services Authority made a great deal of this by reference to action taken against the chief executive of a furniture chain, while allowing our senior bankers to put the UK economy at risk. We have been through desk-based monitoring – (which failed before it started when the FSAVC Review [Free Standing Additional Voluntary Contributions] database was corrupted) – not to mention credible deterrence, Hector Sants’ approach to regulation, which turned out to be neither credible nor to have much deterrent effect. Deep dives do not seem to have found anything at the bottom of the proverbial swimming pool.