Banks should embrace the opportunity to improve standards within their organisations and not wait for the new Senior Managers’ Certification Regime (SMCR) to come into force.
KPMG is calling for banks to embrace the opportunity to improve standards within their organisations and not wait for the new Senior Managers’ Certification Regime (SMCR) to come into force.
The SMCR is a regulatory regime set out by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), designed to make senior individuals within banks and insurance firms personally accountable for their actions.
The effective date for the new regime is 7th March 2016, and will apply not only to UK-based banks, but also to branches of foreign banks.
“This is all about governance. Banks should focus on improving the clarity, process and documentation of their existing governance framework rather than building a parallel framework just to comply with the new regime. This way, changes will remain consistent and achievable.
“Smart banks are already taking pre-emptive action. Bringing about positive change in bank culture is not only necessary and desirable, it is now also possible.”
KPMG also welcomed the regulator’s recent announcement to include foreign branches in the new regime.
Suvro Dutta, banking partner at KPMG, said: “The inclusion of foreign branches reduces the chance of cultural inconsistencies within different parts of the banking sector. Senior managers should be held to the same standards, irrespective of whether you run a large foreign branch or a UK-registered bank.
“The important issue is how pragmatically and proportionately SMCR is implemented. That is why continued constructive dialogue between the industry and the regulator is vital. A common sense approach is required."
He added that one of the key challenges will be that the new regime views management responsibility and accountability entirely through a legal entity lens.
"But that is not how global banking business models actually operate. Large overseas banks will have to demonstrate how they manage risks at a local legal entity level rather than just at a global level.
“The implementation timetable for SMCR is tight and the preparation task required is complex,” Dutta continued. He also noted that despite the considerable focus on senior managers, the implementation of the certification regime will require equal focus as it captured a far larger group of people and it will also be the first time that banks will self-supervise their staff.
He concluded: “Implemented poorly, the new regime may actually result in worse decision-making. Implemented well, it will help secure the UK as a leading financial centre, and a pioneer once again in developing a blueprint for accountability; helping make our banks and insurers safer and more accountable.
“We are hopeful this regime will catch on and step from the financial into the corporate world. Responsible conduct should be sector agnostic. This would not be the first time the UK has led the world in setting an improved benchmark for global markets.”
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Simon Chan, PR Assistant Manager, KPMG
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KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.