With respect to the rules of conduct for senior executives, the FCA outlines four rules with additional guidance on how senior managers can fulfill their duties. These rules, along with examples of violations, are as follows: The first REP008 for Solo regulated entities is due by November 2, 2020. However, there is currently no need to include codes of conduct for unregulated roles in this report, as the code of conduct will not apply to this group until March 2021. Rule 5: You must meet reasonable standards of conduct in the marketplace. Violations: Falsification or attempted manipulation of a benchmark or market, failure to comply with market codes or trading rules. Rule 5: You must meet reasonable standards of conduct in the marketplace. The code of conduct applies to almost all employees who provide financial services or related activities in a business. Individual rules of conduct apply to almost all employees of a financial company, with a few exceptions, such as: Significance should be determined by considering potential financial losses to customers or the business, frequency of the breach, impact on the company`s systems and controls, and delays in identifying or correcting the breach. An entity must report to the FCA a material breach of a rule (including a COCOON rule) in respect of any of its directors, officers, employees or authorised persons. In response to the 2008 financial crisis and recent financial scandals, including the mis-selling of PUPs and the counterfeiting of LIBOR, UK regulators introduced the Senior Management and Assurance Scheme (SMCR) to “reduce consumer harm and strengthen market integrity by setting a new standard of conduct for all those working in the financial services sector”[1]. The SMCR was therefore introduced in 2016 for the banking sector, in 2018 for insurers, in 2019 for regulated firms only and more recently for reference directors in 2020.
Companies are only required to report disciplinary action for violations of the Code of Conduct for individuals who were subject to the Code of Conduct at the time of the violation. Companies must inform the FCA of any breach of the Code of Conduct that results in disciplinary action against the person[1]. This remains the case even if the person has appealed or intends to appeal the disciplinary measure (although in these circumstances the company must acknowledge the existence of the appeal and inform the FCA of the outcome of the appeal)[2]. The FCA considers “disciplinary action” as: REP008 is reported via RegData for the majority of companies, and the information provided to us is stored in the reporting system for 25 years. Assuming that there have been reportable breaches of codes of conduct during the relevant period, the following information should be provided: In the reporting form, companies must provide information about the disciplinary measures taken, the code of conduct that was breached, and the identification of the individual. The Code of Conduct is part of an overarching set of codes of conduct that includes the requirements of the Executive and Certification Regime (SMCR). For a UK branch of a foreign company, the Code of Conduct only applies to the behaviour of a person working for the UK branch. The report must include details of the disciplinary action taken by the Society during the reporting period if the reason for initiating the disciplinary action is a violation of the Code of Conduct. The regulator will likely consider this to be a broad application.
For example, in a letter from Megan Butler, Executive Director of Oversight at the FCA, she confirmed to the Special Committee on Women and Equality that “sexual harassment and other forms of non-financial misconduct may constitute a breach of our Code of Conduct”. For more details on the rules themselves and how they apply to senior executives, assurance staff and other employees, see the FCA Solo Guide for Regulated Companies here. The Code of Conduct is one component of the broader Executive and Assurance (SM&CR) program, which governs qualified individuals in the financial services industry. The Code of Conduct sets minimum standards for individual conduct in financial services. By applying the Code of Conduct to a wide range of employees, the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) aim to improve individual responsibility and awareness of personal behaviour issues across companies. The code of conduct applies to almost all employees who perform financial services or related activities in a business. Five general individual rules of conduct apply to almost all employees, while four other rules of conduct apply only to managers. This practice note takes into account both the FCA Code of Conduct, which is set out in the FCA Code of Conduct for Employee Sources (COCON), and the PRA Code of Conduct, which is set out in the Code of Conduct section of the PRA Rules. It examines what conduct constitutes a violation of the Code of Conduct and what practical steps managers should take to comply with the Code of Conduct for Senior Managers. The Code of Conduct and COCON 4`s comments on them Providing a solid overview of the applicable codes of conduct, as well as clear examples of how the rules are applied in practice and the consequences of non-compliance, is essential to meeting the FCA`s requirements.
The first step – consisting of five rules – applies to everyone. The second level – consisting of four rules – applies only to senior managers. The only exception is that Rule 4 of senior management also applies to all non-executive directors and chief executive officers. The rules apply directly to employees and are intended to set basic standards of good personal conduct against which the FCA can hold people accountable. In order to anchor the required standards of professional conduct in your company, employees must be trained in the rules of conduct. Here are some concrete steps you can take to ensure the success of this project: Here are some of the key considerations that companies should consider when adopting SMCR codes of conduct across their organization. Of course, the complexity of implementing the rules becomes even more complex for individual regulated firms and reference directors, as companies face the psychological and financial pressures of the COVID-19 pandemic and the environment it creates in which individuals may be more vulnerable to cutbacks and rule violations. Companies that recognize this and seize the opportunity to embed the Code of Conduct in their purpose and culture will benefit through this period of uncertainty. What about violations of codes of conduct by management? It`s a £64,000 expense that undoubtedly causes anxiety throughout the industry. Companies and their employees should already be aware of the rules of conduct themselves, including those of all codes of conduct (COCON 2.1) and managers (COCON 2.2). Companies were required to train stakeholders (SMEs, NEDs and certifying staff) on the Code of Conduct by 9 December last year, and this should have included company-specific examples of behaviour that would constitute breaches of the Code of Conduct.
Further guidance from the FCA in the form of the general factors used to assess compliance and specific guidance on the rules themselves can be found in COCON 3 and 4 respectively.