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Insight: New Consultation for Financial Market Infrastructures SM&CR

The HM Treasury has issued a new consultation paper, proposing to introduce a Senior Managers and Certification Regime (SM&CR) for financial market infrastructures (FMIs).

 

What is being proposed?

The SM&CR has been proposed to encourage effective governance, incentivise good behaviour, and ensure employees provide adequate oversight to their areas of responsibility. Implementing accountability for employees can motivate them to identify gaps within their business and correct them.
This new SM&CR for FMIs would be supervised by the Bank of England.

 

The government hopes that the combination of these benefits would improve risk management at FMIs, and therefore their safety and soundness. This would in turn support UK financial stability.

 

If approved, it would apply to central counterparties, central securities depositories and payment systems recognised under the Banking Act 2009.

 

Why is this SM&CR needed?

The consultation paper notes that FMIs underpin the UK’s economy and financial system, acting as conduits between many other types of institutions. If FMIs function well, they create stability and efficiency within the financial services sector.
Individuals and businesses rely daily on FMIs, which enable many of the everyday transactions that we as a society rely upon. Any disruption to FMIs could threaten the financial stability of the UK, the economy and to consumers.
According to the consultation paper, the purpose of the Senior Managers Regime will:

  • Enable the BoE to evaluate the fitness and propriety of senior managers
  • To ensure that FMIs appropriately document the responsibilities of senior managers

 

What are the key features?

The key features of the proposed SM&CR for FMIs are intended to be similar to those existing for banks, insurers and other authorised persons. The new SM&CR would however be modified, granting the BoE new powers to implement, supervise and enforce:

  • A Senior Managers Regime
  • A Certification Regime
  • Conduct rules

 

The principal difference between the existing SM&CR regime in Part 5 of FSMA, and the proposed SM&CR for FMIs, is that the BoE, rather than the FCA or PRA, would be the sole regulator for the purposes of making rules, supervision and taking enforcement action against those in breach of the regime.

 

What are the next steps?

The government consultation will close on 22 October 2021. Until then, views on the following questions are welcome:

  • Do you agree with the proposal to create a SM&CR for FMIs?
  • Are there any specific considerations for FMIs (as a whole or in part) which you think should be accounted for, to ensure the effectiveness of the proposed SM&CR when applied to FMIs?
  • Are there any other considerations on the proposals outlined in this consultation which should be brought to our attention?

 

Click here to view the consultation paper, which includes guidance on how to respond.

After this consultation closes, the HM Treasury plans to legislate for the new regime when parliament permits.

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