Good governance: how new requirements for non-executive directors & SMCR will affect asset managers

  • June 21, 2019

Whilst the need for good governance is nothing new, it is set to increase further with the introduction of the Senior Managers and Certification Regime. Jason Gardiner examines what impact this will have for asset managers.


Good governance is crucial to the continued success of the UK financial services industry.  So many of the high profile and expensive disciplinary cases brought against firms can be traced back to failures in governance and the FCA seems determined to do something about it. New requirements flowed from the FCA’s review of the industry and it sees this as part of its consumer-protection effort, as it declared when launching the final rules:

“We think that the introduction of independent members to AFM boards will lead to better outcomes for investors….” - Policy Statement PS18/8, April 2018 PS18/8

Given that senior management responsibility has been a recurring theme for the different regulators over the past 25 years or more (since the Barings debacle at least), some might say tougher requirements are long overdue.

In any event, significant new rules are on their way with authorised fund managers (AFMs) being required to appoint a minimum of two independent non-executive directors (INEDs) and for them to comprise at least 25% of the total board membership.  Even for firms not technically caught by this requirement, it is clear the way the “wind is blowing” and many will feel that best practice now demands more independent input at board level, in any event. This goes hand in hand with other initiatives, like the Senior Managers and Certification Regime (SMCR), coming later this year.  This will require a fresh look at who’s responsible for what in a firm’s senior management team, how the current approved persons map across and how everything is evidenced and signed off.  All in all, the heat is being turned up at board and senior management level and this will have consequences.

One key consideration for the industry is the finite pool of appropriately qualified people from which to draw.  In some jurisdictions, it is not uncommon for an individual to sit on a dozen or more different fund boards. However, it is likely this would be difficult to justify in respect of asset management firms in the UK. Individuals must have sufficient time to devote to the role and potential conflicts of interest will inevitably rule out some people for some of the appointments.  Whilst it can be useful to have input from outside the industry, relevant experience will remain invaluable for an individual to provide effective input, challenge and support to the business. 

The need for good governance, including the checks and balances brought by non-executive board members, is clearly not new for our industry. Principle 3 (Management and Control) and the SYSC (Senior Management, Systems and Controls) rules have been core requirements for many years. What is new, however, is the scale and nature of the new requirements. Many firms will need external help to get things right and, for those who have yet to prepare in earnest, time is of the essence. The regulator leaves us in no doubt that this is an area of the utmost importance and will have little tolerance for any firms taking governance less than seriously in the future.

Written by Jason Gardiner

Jason is an ex-regulator, board director and compliance officer now working as a freelance governance and compliance consultant.

Find Jason on LinkedIn.




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