Individual Accountability and Governance

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3to2 - 10 Key Focus Areas For Financial Services Firms 2025_alev-takil-7ojyp-IXW7w-unsplash_50034

In this publication and podcast series, we explore some of the core focus areas for UK-regulated financial services firms in the year ahead.

In 2024, we saw disruption to the regulatory reform agenda as the unexpected timing of the general election impacted work and publication schedules. Now that the reform agenda is back on track and aligned to the new government’s plans for growth, we are likely to see improved progress on existing reforms as well as fresh initiatives in the pursuit of growth during 2025.

There is doubtless a strong focus on retail markets under the new government, but the UK’s competitiveness as a place to do business remains vital as improvements to the UK’s wholesale markets continue. ESG and AI continue to dominate across the sector as rapidly evolving areas that profoundly impact the regulatory landscape.

Big Ben London England by Night

When the Edinburgh Reforms were announced on 9 December 2022, they were billed as an ambitious set of reforms. Two years on, we assess which of the measures have been completed, which remain outstanding, and whether they have delivered on the agenda set out.

We also reflect on the recent Mansion House announcements, which have reset the future of regulatory reform.

Read the full report.

Amazing London skyline with Tower Bridge during sunset

PRA and FCA speeches recap the regulators’ work to deliver growth and enhance competitiveness, and outline some key upcoming policy work.

By Rob Moulton, Nicola Higgs, Becky Critchley, and Charlotte Collins

On 17 October 2024, the PRA and the FCA both published speeches given by their Chief Executives at the Annual City Banquet. Although the speeches cover different topics on the regulators’ policymaking agendas, both focus on how the regulators will further their new secondary objective to…

As the pace of reform increases, we take a look at key developments and the timeline ahead.

Significant progress has been made on the Edinburgh Reforms since they were announced in December 2022, with developments gathering pace before the summer break. Given the breadth and speed of the reforms, now is a good time to take stock of where things stand and what we can expect in the months ahead. In this publication, we highlight some of the key developments and set out expected dates for future progress.

The tone of the papers suggests that a fundamental reform of the Regime will be unlikely.

By Rob Moulton, David Berman, Jonathan Ritson-Candler, and Charlotte Collins

On 30 March 2023, the PRA and the FCA published a joint Discussion Paper (FCA DP23/3 and PRA DP1/23) seeking feedback on the Senior Managers and Certification Regime (SMCR). In parallel, HM Treasury published a Call for Evidence on the Regime. The Discussion Paper focuses on the operational aspects of the SMCR, whereas the Call for Evidence looks at the legislative aspects. Together, the papers seek comments on the SMCR’s performance, effectiveness, scope, and proportionality. The closing date for responses is 1 June 2023.

The discussion paper aims to encourage industry-wide dialogue on sustainability related-governance, incentives, and competence.

By Anne Mainwaring, Sara Sayma, and Dianne Bell

On 10 February 2023, the FCA published DP23/1: Finance for positive sustainable change: governance, incentives and competence in regulated firms.

The FCA considers that a firm’s governance, purpose, and culture are central to how it embeds environmental and social considerations into business, risk, and capital allocation decisions for the benefit of consumers. With this in mind, the FCA is seeking views on how it can move effectively beyond disclosure-based initiatives to help and encourage firms as they develop their arrangements for governance, incentives, and competence in the area of sustainability.

By David Berman, Nicola Higgs, Jon Holland, Andrea Monks, Rob Moulton, and Nell Perks

The FCA stated that the perpetrator’s character is key to non-financial misconduct investigations, which suggests a mismatch with recent case law.

In last year’s Frensham[1] case, the Upper Tribunal considered how relevant a (non-dishonesty-based) criminal offence committed in one’s personal life is to the perpetrator’s regulatory “fitness and propriety”. The Upper Tribunal effectively reined in the FCA from too readily linking (i.e., considering as relevant) non-work-related misconduct to the perpetrator’s regulatory fitness and propriety to perform a regulated function. In doing so, the Upper Tribunal set out the approach to be taken when determining the relevance of non-financial misconduct in a regulatory context.

This Latham Client Alert highlights the difficulty in reconciling the FCA’s newly published ban of Mr Zahedian with the Upper Tribunal’s findings in Frensham. On the basis of the published Zahedian Final Notice[2], it is difficult to understand how (or even whether) the FCA followed and applied the approach laid down by the Upper Tribunal in Frensham. Indeed, Mr Zahedian may have felt somewhat aggrieved if he had read the Frensham judgment.

The case provides instructive practical examples of the “reasonable steps” companies can take according to the FCA and a reminder of the FCA’s cultural expectations of CEOs.

By David Berman, Jonathan Ritson-Candler, and Sean Wells

On 16 November 2022, the FCA issued a final notice (Final Notice) to the former CEO of Sonali Bank (UK) Limited (SBUK), Mr Prodhan, for anti-money laundering (AML) failings for a period running from 2012 to 2014 (the Relevant Period).

The Final Notice provides a reminder to firms of the FCA’s expectations in relation to AML compliance; in particular:

  • the role of senior management oversight of the Money Laundering Reporting Officer (MLRO);
  • the individual accountability of the senior manager tasked with overseeing the firm’s AML and financial crime compliance; and
  • the importance of senior management engendering a strong compliance culture, including in relation to AML.

Guidance clarifies assessment of liability under Rule 3110, including designation as supervisor, application of reasonableness standard, and factors for and against charging compliance officials.

By Marlon Q. Paz, John J. Sikora Jr., Stephen P. Wink, and Deric Behar

On March 17, 2022, the Financial Industry Regulatory Authority, Inc. (FINRA) published Regulatory Notice 22-10 (Reg. Notice 22-10), reminding broker-dealers of the scope of liability for chief compliance officers (CCOs) under FINRA’s Supervision Rule (Rule 3110). The role of compliance, and that of the CCO in particular, which is often characterized as “vital” in helping to prevent, detect, and remediate potential violations of internal policies and procedures and the securities laws, has been the subject of policy debate for some time.[1] In Reg. Notice 22-10, FINRA outlines a blueprint to assess the potential liability of CCOs under Rule 3110.

Rule 3110 imposes various supervisory obligations on member firms, such as the obligation to “establish and maintain a system, including written procedures, to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.” Firms are also required to designate registered principals as supervisors for these responsibilities. The express or implied designation of supervisory authority is the basis for individual liability under Rule 3110.

Board members are expected to have adequate knowledge and understanding of climate-related and ESG risks.

By Nicola Higgs, Paul A. Davies, and David Berman

Legislators and regulators around the world have long recognised that one of the most effective ways to drive change is by focusing the minds of management — specifically by attaching individual accountability for ensuring that an organisation meets expected standards. Transitioning to net-zero carbon emissions has now become a critical priority for many governments, and the spotlight is shining on the boards of financial institutions and companies to drive that change.

This blog post highlights recent developments in the EU in this regard. At a time when standards on climate and environmental, social, and governance (ESG) issues are converging globally, these developments will be informative to global organisations wanting to embed best practices in governing the transition.