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Martin Wheatley, Chief Executive of the FCA, delivered a speech at Bloomberg entitled ‘Nothing to fear from high standards’.
“It’s not straightforward, frankly, to manage the behaviour of many tens of thousands of individuals across complex, global organisations. So, if you’re a bank that operates across multiple territories, is covered by multiple regulators, and distributes multiple products, governance is clearly going to be very complex. And the issue that flows through from there, of course, is that as scale increases, it becomes correspondingly more complex for leaders to manage the specifics of service delivery as you move down the structure.
In other words, you begin to enter the territory here where you ask: ‘well, ok, the tone at the top has changed, but how do you create a more balanced picture across the organisational structure?’ And this, essentially, is where the certification regime comes in. So, while the current, approved person regime, captures individuals at the top of the organisation, as well as those in some customer facing roles, there’s a blind spot here, in as much as middle management, and some material risk takers, are not subject to the same regulatory fit and proper standards.
Now, for firms, this is all a significant change. And there’s industry concern, we know, around making fit and proper assessments on staff without regulatory intelligence. But it’s worth reflecting here, I think, that the number of cases where this would realistically apply – so where the FCA would have relevant information that was not available to firms – would be the exception.
And for me, it’s difficult to argue on the one hand that there’s an issue without, on the other, making an objective assessment of the risks of not moving towards a new system. Is there really a case, say, in claiming regulators are better positioned to monitor the day-to-day competence, integrity and behaviour of a firm’s staff, than their line managers?
So, on paper at least, it seems far more likely to me that corporate risk will be reduced, not intensified, under the new system. But it will clearly require a degree of structural underpinning, which is one of the reasons why you’ll have regulatory references to support intelligence sharing between firms. In other words, regulatory transgressions will follow affected individuals, allowing firms to make their own assessments on recruitment. And we’re also looking here at whether there’s any further that regulators can go here within the current legislative framework.”