After the watershed – HM Treasury consults on extending SMCR to FMIs

It is little over six months since the phased roll-out of Senior Managers and Certification Regime (SMCR) reached a climax-of-sorts, with the introduction of the regime for benchmark administrators. The scope of the landmark regime – which is part of the UK regulators’ drive to improve culture, governance and accountability – is, however, set to be further extended, with HM Treasury having launched a consultation on applying the SMCR to financial market infrastructures (FMIs).

The consultation proposes a regime for the following Bank of England-supervised entities:

• central counterparties (CCPs);
• central securities depositories (CSDs); and
• recognised payment systems and specified service providers. This includes payment systems recognised under the Banking Act 2009 for regulation by the Bank, and service providers to such payment systems.

The consultation argues that existing regulatory regimes for FMIs make “very limited provision” for oversight of individual conduct – with most supervisory and enforcement powers pointed towards the FMI legal entity. Under the proposals, that broadly echo the existing SMCR regime, the Bank could be given new powers to implement, supervise and enforce:

• a senior managers regime – this would look to ensure that (1) the Bank can evaluate the fitness and propriety of senior managers, and (2) FMIs document senior managers’ responsibilities – with a view to the Bank being able to hold the senior manager accountable within their area of responsibility;
• a certification regime – this would require FMIs to assess and certify the fitness and propriety of other employees performing specified “significant harm functions”;
• conduct rules – these would set minimum, high-level expectations in relation to the conduct of all FMI employees.

The consultation is encouraging views on how an SMCR for FMIs may be “appropriately and proportionately” applied, and is open to the possibility that the regime could differ by the three categories of FMI entity (i.e. CCPs, CSDs and recognised payment systems and specified service providers).

The consultation will close on 22 October. The government expects to legislate for the regime when parliamentary time allows, following which rule-making powers will be given the Bank – in particular, the powers to designate senior management functions and to make conduct rules for FMIs. The Bank will need to publicly consult on these new rules before they come into effect.