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Britain's finance watchdog tells firms to think, not tick boxes

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By Reuters

By Huw Jones

LONDON (Reuters) – Britain’s finance industry watchdog wants financial services firms to think for themselves when applying new accountability rules for staff rather than adopt a “tick box” mentality for the new regime.

The new rules are designed to ensure staff are “fit and proper” will apply to thousands more financial services employees from December.

Britain broke new ground in regulation by introducing a senior managers and certification regime (SMCR) following bad behaviour that included attempts to rig the Libor interest rate benchmark and mis-selling of loan insurance,

The aim is to improve behaviour by making top management of financial firms directly accountable for their actions, helping regulators to punish the right people quickly when things go wrong.

Britain’s finance watchdog the Financial Conduct Authority vets senior staff, but firms themselves certify that less senior employees are “fit and proper”.

SMCR, which already applies to banks and insurers, will be rolled out to the rest of the financial sector, including funds on Dec. 9., adding 47,000 more people according to a Deloitte report.

The FCA is facing pressure from firms to spell out what would constitute “reasonable steps” senior managers must take to avoid a breach of the rules that would risk a fine or ban.

But the FCA wants the industry to step up to the task itself.

“We want people to think about what they are doing, not follow unthinkingly a set of tick box rules,” David Blunt, head of conduct specialists at the FCA told a City & Financial conference on Wednesday.

“That is why we are not planning to provide more guidance on reasonable steps on conduct rules or how to do certification.”

The watchdog is piling pressure on firms to get ready by December.

Megan Butler, the FCA’s executive director for supervision, said it was proving difficult for some firms to assess if their staff are fit and proper.

“It’s a tough thing to do. Firms are having really difficult conversations about what fit and proper means for a role,” she told an Investment Association conference.

Non-financial misconduct, a reference to behaviour such as sexual harassment, racism, homophobia and sexism, is also “misconduct, plain and simple” under SMCR, Butler said.

Firms must also create a culture where people feel free to speak out against bad behaviour. “We still see a culture where colleagues are blindly expected to follow orders,” Butler said.

The FCA is focused on stopping harm to customers and markets, and its supervision will be scrutinising a firm’s culture alongside its business model Butler said.

(Reporting by Huw Jones. Editing by Jane Merriman)