Plans from regulators to make top managers across the financial services industry personally responsible for the wrongdoing of their junior colleagues risk a “brain drain” away from the City, according to a report published today.
Some 44 per cent of senior managers and compliance officers surveyed by regulatory consultants Bovill said it will be hard to attract quality candidates to the next generation of senior roles, because personal liability will be higher under the new regime.
A consultation on plans to extend the senior managers and certification regime to all firms regulated by the Financial Conduct Authority (FCA) – including insurance brokers, hedge funds, and asset managers – closes on Friday.
The FCA will then sift through the responses from across the industry before deciding on a change in policy at some point by summer 2018.
The change in rules would mean individuals in senior roles could be held accountable for misconduct within their teams, with black marks against names potentially following managers around.
“The big questions with the regime is how will the regulators enforce it,” said Ben Blackett-Ord, Bovill chief executive. Regulators must be “alert to unintended consequences” particularly of disproportionate penalties, he added.
He said: “There is a real risk that these regimes could lead to a brain drain, where top talent no longer aspires to take up senior positions in financial services companies.”
However, the Bovill survey found evidence of wide support for a strong regulatory regime, with 59 per cent of executives surveyed saying that clear and tightly enforced rules made a jurisdiction more attractive to investors.
Half of senior managers believe the level of regulatory scrutiny on them is appropriate, with a further one in 10 feeling it is actually too low.
Roger Barker, head of corporate governance at the Institute of Directors, said the FCA’s moves to extend the regime were a “reasonable development”.
“We are conscious this will increase the compliance burden on some companies,” he said. However, the changes will be a positive step towards improving trust in financial services “as long as it’s implemented in a proportionate and sensible way.”
The Investment Association, which represents many fund managers who will fall into the scope of regulations, said it will respond to the consultation. A spokesperson said: "This came at a time for many firms who are already implementing an unprecedented wider set of changes, such as Brexit and Market Study. The implementation process needs to be proportionate and flexible."