30 July 2018

Three key lessons from the first fine under Senior Managers & Certification Regime

What can firms learn from the first ever case under SMCR?

As you will be aware the FCA is extending the SMCR further to include insurers and all FCA solo regulated firms. This month they have announced the implementation dates for the extended rules which will come into force on 10 December 2018 for insurers and 9 December 2019 for solo regulated firms and this will extend the regime to 47,500 firms.

For those already falling within the regime, and for those preparing for the extension dates, what can be learnt from the recent case - the first to be brought under the SMCR.


In May, the FCA and PRA (the Regulators) jointly brought the first ever case under the Senior Managers & Certification Regime (SMCR) against James Staley, Chief Executive of Barclays Group. The crux of the issue lay in the handling of two anonymous letters sent to the Barclays board that raised concerns over the appropriateness of a new senior hire. Mr Staley, a friend and former colleague of the subject of the letters, felt it was a malicious smear attempt and attempted to unmask the author in order to stop what he described as “harassment”. Subsequently, an employee complained to the board about its whistleblowing procedures, stating Mr Staley’s actions and personal involvement as a case in point.

Lessons learnt 

1. SMCR will be used to hold senior management to account

The SMCR was developed as a result of the outcry following the public’s perception of a lack of punishment of senior management in the financial services sector for wrongdoing and mismanagement. So, as the first action taken under the new regime, the size of the fine and high profile of its first casualty shows the seriousness of the Regulators in pursing enforcement action in this area.

Mr Staley’s case marks the first time that a sitting CEO of a UK bank has faced such regulatory sanctions. While the fine imposed, 10% of his relevant annual income (equating to £642,430), seems sizable, Nicky Morgan MP, chair of the Treasury committee, may not think the Regulators have been sufficiently punitive. She plans to ask the FCA “why it believes that the fines are appropriate and what it believes the implications are for the senior managers regime.”

2. Reputational risk will be a hazard both for the firm and the Senior Manager

While the Regulators found that Mr Staley had failed to act with due skill, care and diligence, he was not found to be in breach of the requirement to act with integrity – a finding that would, in all probability, have resulted in his dismissal. However, much has been made of whether he actually is fit to act as CEO still. Only last week, Mr Staley struggled through a bruising annual meeting, facing criticism such as when one investor posited: “The chief executive is irrevocably tarnished. I suggest you consider his continuation.”

It is not just Mr Staley’s personal reputation that has been impacted. As Mark Steward, the FCA’s Executive Director, said: “Mr Staley breached the standard of care required and expected of a chief executive in a way that risked undermining confidence in Barclays’ whistleblowing procedures.” With Barclay’s share price barely rising, a lack of confidence in the CEO could prove dangerous for the business as a whole.

In the light of his actions, the Regulators have imposed enhanced monitoring and scrutiny over Barclays’ whistleblowing procedure, including having to report annually on all whistleblowing cases involving allegations made against its Senior Managers. Further damaging cases could lead to spiralling lack of shareholder confidence.

3. Organisations are still failing to understand and comply with whistleblowing requirements

Despite the Public Interest Disclosure Act being in force for nearly two decades, and with specific whistleblowing requirements laid out in the FCA Rule Book, it remains evident the many firms still have a long way to go to create and embed effective whistleblowing procedures. However, while many breaches are difficult to detect and proactively searching can be time-consuming and costly, encouraging the raising of concerns can be extremely effective. Studies have shown that anything from 49% to 71% of referrals come from tip-offs.  

Simple actions such as having a clear and accessible whistleblowing policy, training for staff, clearly named persons to whom concerns should be directed to, plus different ways to raise a concern are simple mechanisms that will go a long way to mitigate the risks of facing unlimited fines and huge reputational damage.

How we can help

Whether you require a review of your whistleblowing procedures, a healthcheck assessment against your SMR obligations, or assistance with the implementation of processes and controls to ensure continued compliance, our multi-award winning financial services team has the in-depth understanding and experience to provide you with all the support and guidance needed to deal with these new risks.

If you would like to discuss any issues raised in this article please contact Gareth Magee or Emma MacArthur.

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