Greater accountability and personal responsibility are the watchwords of the new Senior Managers Regime (SMR) which came into force on 7 March 2016 for banks, building societies and large investment firms. The regime is due to be expanded to apply to a wider range of authorised firms in 2018. Firms caught in its net then will be keen to learn from the experience of the initial roll-out.
Compliance with the SMR raises a number of employment law issues. In this post, I thought it would be helpful to pick out three tricky areas which arise at different stages of the employment lifecycle.
Negotiating amendments to senior managers’ contracts
Employers will need to think about amending the employment contracts of those identified as senior managers in order to deal with their new responsibilities and obligations under the SMR. This could include for example, compliance with the new Conduct Rules and cooperating with handover procedures.
One issue to address is the status of the Statement of Responsibilities (SoR). This is a key document under the SMR and sets out the areas of the firm’s business for which the senior manager is responsible. Agreeing the SoR can be a sensitive issue given that, in the light of increased personal responsibility, senior managers may be concerned to delineate their responsibilities as narrowly as possible. Once it is agreed, employers may wish to incorporate the SoR within the senior manager’s contract in order to make it contractually binding, thus permitting lawful termination of employment for breach of the responsibilities set out in the SoR.
Firms may differ in their approach to negotiating contract changes with senior managers. Firms will undoubtedly want to do their best to agree any such changes amicably, particularly given the seniority of the individuals concerned. However, at the end of the day, if a senior manager is unhappy with the proposed changes and the employer is unwilling to compromise, the individual has limited options for action. They could refuse to accept the changes, resign and claim constructive dismissal, but this would be very much a last resort and something to be avoided. The only situation in which this might be a realistic scenario is if the senior manager is planning to leave the firm anyway, in which case they might allege breach of their employment contract with a view to arguing that any post-termination restrictions could not be relied upon as a result.
Firms should also think about whether they treat new recruits to a senior manager role in the same way as existing employees. It may be easier to impose strengthened terms of employment on new employees but thought should be given as to whether, as a matter of policy, it is appropriate to have different sets of terms and conditions in place.
Ongoing assessment of fitness and propriety by senior managers
Senior managers can expect to be involved in assessing the fitness and propriety of certified employees within their area of responsibility and also in disciplinary matters generally.
Given that a senior manager now has a greater level of personal accountability than under the old regime, human nature suggests that they may be thinking about their own position in assessing the conduct of others. They may be less likely to gloss over minor misconduct issues because they are fearful that this could rebound on them in the future. For example, a senior manager may overlook a small misdemeanour committed by a junior colleague and then find that same employee goes on to commit a major regulatory breach relevant to the area for which the senior manager is responsible. This would raise questions of why their fitness was not flagged earlier. It will also be interesting to see whether, in assessing fitness and propriety, firms now take more account of acts of dishonesty or behaviour outside the office, such as fare-dodging.
Firms will need to determine whether a senior manager is always the most appropriate person to deal with disciplinary issues within their team and may want to consider in some situations using a more independent assessor.
Post-termination obligations
One tricky area for negotiation between senior managers and employers is the extent to which the senior manager should be subject to contractual duties following the termination of their employment. Firms may be keen to impose obligations post-termination, for example to cooperate with any inquiry which may subsequently be launched, either internally or by the regulator, into an area for which the senior manager was responsible at the relevant time. Firms may also want senior managers to comply with handover procedures to the extent that those have not been completed on the termination of the employment.
These post-termination duties are not something which employers are specifically required to impose under the SMR. However, some firms may wish to include them as part of a wider approach to enhancing personal accountability under the new regime. This can be a source of conflict with senior managers often reluctant to accept such ongoing obligations. Negotiations may revolve around how long the obligations should apply for, whether the senior manager’s costs and expenses will be met and whether the senior manager will be allowed access to relevant materials, particularly where their own conduct is in question. Senior managers are also likely to demand certainty in relation to the retention of their records (relevant to discharging their senior management obligations) and also their potential ability to request those records in the event of any investigation post-termination.
Thank you Crawley for a well written, informative article. I wanted to ask – under the SMR do senior managers (e.g. country head of a unit) have an executive power to terminate someone’s employment because they think they can not “take a risk” on that individual – even if that individual has gone through a one year disciplinary process and the outcome is a final written warning (and not summary dismissal for gross misconduct)?