Is the Senior Managers and Certification Regime Changing Banking for Good?
| Published date | 01 November 2022 |
| Author | Eleanore Hickman |
| Date | 01 November 2022 |
| DOI | http://doi.org/10.1111/1468-2230.12752 |
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Modern Law Review
DOI:10.1111/1468-2230.12752
LEGISLATION
Is the Senior Managers and Certication Regime
Changing Banking for Good?
Eleanore Hickman∗
In 2016 the Senior Managers and Certication Regime (SMCR) came into being. It sought to
improve banking culture through the attribution of responsibility to individuals and to provide
clarity on required conduct standards. It marked a shift away from collective responsibility and
towards more individual accountability that had been so lacking following the nancial crisis
of 2007/08. Its scope is expansive, including not just board executives but also senior managers.
In this paper, I question whether there are indications the SMCR is achieving its objective of
‘changing banking for good’.I do this by analysing the design of the SMCR and its application in
practice as well as the meaning and regulatability of culture.I conclude that though the SMCR
could make strides towards better banking culture,its potential is being curtailed by inconsistent
messaging and irresolute application.
INTRODUCTION
It has been more than ten years since it was uncovered that bankers,incentivised
by huge bonuses, manipulated the London interbank oered rate (LIBOR), the
global nancial benchmark which had been in use for over 30 years.1In a speech
discussing the manipulation, Mark Carney,then Governor of the Bank of Eng-
land, drew attention to culture issues saying;‘rather than being professional and
open, markets became infor mal and clubby. Rather than competing on merit,
participants colluded online. Rather than anyone taking responsibility for their
actions, few were held to account’.2Accountability for failures in the banking
sector has largely been borne by corporations not individuals. Companies have
paid vast sums of money to regulators in nes. But the eectiveness of this, as
both a remedy and an incentive to improve, is doubtful.
If corporate accountability is inadequate, one alternative is to focus more
on the individual. This was one of the conclusions reached by the UK’s
Parliamentary Commission on Banking Standards in a 500 page report
∗Lecturer in Law. University of Bristol. I am grateful to have received feedback on earlier versions
of this paper from Eilís Ferran, Roseanne Russell and an anonymousreviewer. The usual disclaimers
apply.All URLs were last accessed on 6 June 2022.
1 ‘LIBOR: Investigation by Regulators’ Financial Times 16 March 2011.
2 M. Carney,‘True Finance – Ten Years after the Financial Crisis’(Speech at the Economic Club
of New York, 19 October 2018).
© 2022 The Authors. The Moder n Law Review publishedby John Wiley & Sons Ltd on behalf of Modern Law Review Limited.
(2022)85(6) MLR 1440–1462
Thisis an open access ar ticle under the terms of the CreativeCommons Attr ibution License,which permits use,distr ibution and reproduction
in any medium,provided the original work is properly cited.
Eleanore Hickman
entitled ‘Changing Banking for Good’ (the CBFG Report).3The nding came
in the context of a recommendation that bank culture needed to change,an as-
pect upon which all witnesses agreed.4Following the CBFG Report, the Senior
Managers and Certication Regime (SMCR) came into being, derived from
the Financial Services (Banking Reform) Act 2013 and the Financial Services
and Markets Act 2000 (FSMA 2000).5
An important element of the SMCR is the attribution of responsibility to
senior manager s from which (in theory at least), accountability follows.It marks
a subs tanti al shif t away from collect ive responsibi lity towa rds more i ndivid ual
accountability and extends the scope of liability from a narrow focus on di-
rectors to include many more bank decision makers. The SMCR is, in part,
premised on the idea that enhanced accountability at senior management levels
in banks will go some way to improving the ‘tone from the top’ and conse-
quently, culture.
Three categories of culture failings were linked to the 2007/08 nancial
crisis: ‘a culture of individualism and short termism’, ‘weak culture of oversight
among board members’ and ‘a weak risk culture’.6The nancial crisis and the
LIBOR scandal that followed led the CBFG Report to state that the banking
industry ‘was not just revealed as incompetent,but appeared morally bankrupt’.7
Their conclusion was that ‘trust in banking can only be restored when it has
been earned, and it will only have been earned when the deciencies in banking
standards and culture, and the underlying causes of the deciencies have been
addressed’.8
The problem is not unique to the UK. In 2019, an Australian report found
that the instances of bank misconduct it was investigating were almost always
a consequence of poor culture.9The nancial crisis problems in US nancial
institutions (Fannie Mae, Freddie Mac, Moody’s Cor poration, AIG,Citig roup)
were all linkedto organisational culture.10 The levelof trust in European banks is
low, particularly in Spain, Italy and the Netherlands.11 Research has found that
in certain corporate cultures, in particular those that condone self-interested
3 House of Lords, House of Commons,‘Changing Banking for Good. Report of the Parliamentary
Commission on Banking Standards’ HL Paper 27-I HC 175-I and HL Paper 27-II HC 175-II
(2013).
4ibid, 356.
5 Financial Ser vices Banking Reform Act 2013, s 18-35, amending the Financial Services and
Market Act 2003
6 Group of Thirty (ed), Banking Conduct and Culture: A Call for Sustained and Comprehensive Reform
(Washington,DC: Group of Thirty,2015) 19.
7 n 3 above, 82.
8ibid, 104.
9 Australian Royal Commission, ‘Final Report of the Royal Commission into Misconduct in the
Banking, Superannuation and Financial Services Industry’ Royal Commissions 4 February 2019
at https://www.royalcommission.gov.au/banking/nal-report.
10 The United States Financial Crisis Inquiry Report. Final Report of the National Commission on the
Causes of the Financial and Economic Crisis in the United States (Washington,DC: 2011) 180, 207,
265, 273.
11 European Systemic Risk Board, Report on Misconduct Risk in the Banking Sector (Frankfurt am
Main: ESRB,2015) 7.
© 2022 The Authors. The Moder n Law Review published byJohn Wiley & Sons Ltd on behalf of Modern Law Review Limited.
(2022) 85(6) MLR 1440–1462 1441
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