G20-Germany-Hamburg-2017

ADVOCACY
DUFF & PHELPS
Personal
liability:
the price
to pay for a
fairer system
It goes without saying that the global financial
crisis of 2008–2009 thrust the operations of the
financial services industry into the limelight.
Yet despite the damaging economic effects
on the global economy, the fallout from the
crisis provided new prospects for radical change.
Global outrage intensified the need to enhance and
develop existing frameworks, rules and practices to
prevent future calamities. A dramatic change in the
culture of the industry was required, and intrinsic
to this was the overwhelming need to strengthen
corporate governance and risk management, as
well as individual accountability following the
financial crisis and what has transpired thereafter.
A decade later, waves of new regulations
aimed at preventing similar collapses continue
to be introduced. In the UK, senior managers in
the financial services industry will be giving their
full attention to the FCA’s new Senior Managers
Certification Regime (SMCR), which places individual
accountability beyond the boardroom at the forefront
of the regulators’ mission statement. We can also see
that SMCR is being introduced by other regulators
globally. In Hong Kong, the Securities and Futures
Commission is introducing the Manager in Charge
of Core Functions regime, which has some
similarities. In the US, the New York City Department
of Financial Services has introduced a certification
regime for the Bank Secrecy Act/Anti-Money
Laundering laws, which requires a certifying
senior officer to file an annual certificate to confirm
compliance. A certifying officer who files an incorrect
or false annual certification may also be subject to
criminal penalties for such a filing.
Historically, regulatory attention – including
supervision and enforcement matters – had been
focused primarily on the corporate entity, but it has
moved on to seeking to hold boards and individual
directors to account. It has now moved down
another level. One of the frustrations of politicians
and the public in the wake of the financial crisis
was the failure to identify and hold accountable
individuals who were responsible for the problems.
Penalising the corporate entity simply meant
shareholders took the hit while boards of directors
could claim they were insufficiently sighted on
individual malpractice beneath them.
Managerial responsibility
Part of the answer? The SMCR, which introduces a
statutory ‘duty of responsibility’, in which senior
managers are required to take all reasonable
steps to prevent regulatory breaches in their
respective areas. Given that the relationship
between the board and senior managers, who
are largely responsible for implementing the
board’s decisions, is vitally important for effective
corporate governance and risk management, the
added element of statutory responsibility, over and
above regulatory expectations for accountability