Financial Services and Markets Bill – in a Public Bill Committee at 10:30 am on 1st November 2022.
With this it will be convenient to discuss that schedule 10 be the Tenth schedule to the Bill.
The clause introduces schedule 10, which provides for the new senior managers and certification regime—SMCR—for financial market infrastructures. The existing SMCR was first introduced following the 2008 financial crisis to strengthen governance in financial services firms and to promote high standards of conduct among all staff. Today, the regime applies to most authorised firms across the financial services sector, including banks and insurers; however, it does not apply to firms that are regulated outside the main FSMA authorisation framework. The clause addresses that by allowing a new SMCR to be created for certain types of financial market infrastructure. It will help to bring governance requirements for such systemically important firms in line with the majority of the financial services sector.
Schedule 10 provides for the new regime by inserting proposed new chapter 2A into part 18 of FSMA 2000. That will allow for an SMCR to be applied to central counterparties and central securities depositories through the negative resolution procedure. The schedule also allows for the regime to be extended in future to recognised investment exchanges and credit rating agencies, should that be appropriate. The power can be exercised by the Treasury through the affirmative resolution procedure in respect of credit ratings agencies, and through the negative procedure in respect of recognised investment exchanges. The Government will undertake consultation with relevant parties before deciding on whether the regime should be extended to such entities.
The key features of the new regime mirror those of the existing regime: a senior managers regime, a certification regime and conduct rules for all employees. The certification regime applies to employees whose roles do not have senior management functions but could cause significant harm to the firm or its users. Those roles must be performed only by employees who have been certified by the firm as being fit and proper to perform the roles. The regime will also allow regulators to make conduct rules for all employees of the firms.
Schedule 10 also provides supervisory and disciplinary powers for the Bank and the FCA, including the power to impose financial penalties and to take action against misconduct. The Bank and the FCA will be able to make prohibition orders such that any individual they do not consider to be fit and proper can be banned from performing a function at one of those types of entity, or at any authorised or exempt financial services firm.
The new regime will be an effective and proportionate way to strengthen governance arrangements and to promote high standards of conduct among all staff. I therefore recommend that the clause and schedule 10 stand part of the Bill.