I. The Core Idea - Why Frameworks Needed

Before 2016, UK had Approved Persons Regime (APER). Principle 7: Senior manager must take reasonable steps to control business. But in FSA v Pottage (2012) Upper Tribunal - CEO of UBS Wealth Management was acquitted because FSA could not prove he personally failed. Enforcement action centred on alleged breaches of Principles 5,6,7 of APER, but Tribunal held obligation is to have systems, not guarantee no failure. Banks exploited diffusion of responsibility.

Parliamentary Commission on Banking Standards (PCBS) "Changing Banking for Good" 2013 recommended reversal of burden: Executive must prove he took reasonable steps, not regulator prove he didn't.

This created 3 frameworks:

II. UK Senior Managers & Certification Regime (SM&CR) - The Gold Standard

Structure:
Introduced in March 2016 for banks, PRA investment firms, insurers, rolled out to all FCA firms Dec 2019. Purpose to ensure senior managers, being those that have significant influence over running and performance, are held both responsible and accountable.

1. Senior Managers Regime: 30 Senior Manager Functions (SMF1 CEO, SMF2 CFO, SMF3 Chair, SMF16 Compliance, SMF17 MLRO, SMF24 COO etc). Each must have Statement of Responsibilities (SoR) - 1 page describing what he is accountable for. And bank must have Management Responsibilities Map showing how responsibilities fit.
2. Duty of Responsibility: FSMA s66A - Senior manager can be disciplined for misconduct in two circumstances: breaching conduct rule, or being responsible for firm contravention where he failed to take reasonable steps. Reversal of burden originally proposed, later softened to reasonable steps test but burden effectively on manager to show steps.
3. Certification Regime: Lower staff who can cause significant harm must be certified annually fit & proper.
4. Conduct Rules: 5 rules for all, 4 extra for senior managers.

Case Laws - SM&CR Enforcement:

1. Wyelands Bank - Former CEO fined GBP 118,808 (2023) - PRA
Former CEO fined for failing to take reasonable steps to ensure business for which he was responsible was controlled effectively and complied with regulatory system. This is only third enforcement action concluded successfully by FCA/PRA against senior manager for breaching individual accountability.

• Facts: Wyelands Bank (owned by Sanjeev Gupta) had concentrated exposures to Gupta's group. CEO approved without adequate risk systems.
• Held: SMF failed reasonable steps test - did not ensure risk committee challenged exposures.

2. FSA v Pottage (2012) - Pre-SM&CR but foundation
Enforcement in such cases tends to centre on APER 5,6,7. In Pottage's case, FSA sought to take action against Mr Pottage personally as CEO of UBS AG. Tribunal acquitted, saying systems existed, individual not liable for every failure. This led to SM&CR - now SoR makes it personal.

3. Jes Staley - Barclays CEO - FCA Fine £642,430 (2023) + Ban attempt
FCA found Staley failed to act with due skill, care, diligence in handling whistleblowing letter regarding personal acquaintance (Jeffrey Epstein link disclosure). Breach of SMF conduct rule SC4 - failed to disclose conflict. Shows SM&CR extends to personal conduct.

4. Radia v Jefferies International Ltd UKEAT/0123/18
Analyst fairly dismissed - under SM&CR, firm must meet standards of fitness and propriety and will be personally accountable. Employee argued dismissal unfair, tribunal upheld certification failure = fair dismissal ground.

III. Australia - BEAR to FAR - Harshest Penalties

BEAR - Banking Executive Accountability Regime:
Enacted Feb 2018, commenced 1 July 2018 for large ADIs, 1 July 2019 for medium/small ADIs. At its core, BEAR requires ADIs and subsidiaries to have accountability map illustrating how collectively responsibilities are allocated, accountability statements for each accountable person describing areas attributed, and to register with APRA.

• Accountable Persons: Directors + senior executives (4 per ADI min)
• Obligations under s37CA(1) Banking Act 1959: conduct business with honesty, integrity, due skill, care, diligence, deal with APRA openly.
• Deferral: Minimum 40% variable pay deferred 4 years, 60% for CEO. Can be clawed back.
• Penalties: ADI fined up to AUD 210M, executive disqualified, bonus clawed back.

BEAR in mind about accountability and governance - due to commence.

FAR - Financial Accountability Regime - Act received Royal Assent 14 Sept 2023, applies to banking from 15 March 2024, insurance/super from 15 March 2025
FAR implements recommendations of Financial Services Royal Commission to expand BEAR across financial services.

• Replaces BEAR, extends from ADIs to all general, life, private health insurers and superannuation licensees.
• 6 key accountability obligations + 4 deferred remuneration obligations + whistleblower protections.
• Objects: to provide strengthened accountability framework.
• Enforcement by APRA and ASIC jointly.

Case Law / Enforcement:

• No court case yet, but APRA's experience with BEAR: 2019 Royal Commission Final Report 4 Feb 2019 stipulated BEAR was response to misconduct. APRA reported BEAR introduced greater clarity, leading to better decision making. Several ADIs voluntarily increased deferral to 60% to meet BEAR.
• CHOICE submission to Treasury on transitioning to FAR: If BEAR's impact measured in financial terms - by amount of executive remuneration clawed back - impact significant.

IV. Ireland - Individual Accountability Framework (IAF) - SEAR

IAF Bill enacted March 2023, draft regulation April 2023.
Central Bank proposes introduction of new Individual Accountability Framework which would apply to banks and other regulated providers. Framework includes Conduct Standards, Senior Executive Accountability Regime (SEAR) and enhancements to Fitness & Probity.

• SEAR similar to SM&CR: Pre-approval for senior execs, Statements of Responsibilities, Management Responsibilities Map.
• New: Proposes laws involve setting up SEAR as well as introduction of common conduct standards for key employees, and follow on from similar rules introduced in UK in 2016. Central aim to do away with key part of existing defence that manager not aware.
• Personal liability: Executive liable up to €1M fine + disqualification.

V. India - Emerging Framework

India has no statutory SM&CR yet, but building blocks:

1. Board Accountability: Board of Directors in Public Sector Banks accountable to Shareholders and Government. Government as largest shareholder holds management responsible. Under 2025 Governance Directions.

2. RBI's Implicit Accountability:

• Compensation Guidelines 2019 with malus/clawback - executive pay linked to accountability
• Enforcement: RBI fines for exception approval tracking failure - official made personally liable (see Central Bank of India vs Prabha Jain SC 2025 - officials who approved loan be made liable)
• Draft Responsible Business Conduct Directions 2025 proposes Senior Management Accountability Map similar to UK.

3. Case Law India:

• Chanda Kochhar / ICICI: Board treated resignation as dismissal, clawed back bonuses - using accountability principle similar to SM&CR Conduct Rule.
• Yes Bank / Rana Kapoor: RBI rejected CEO reappointment - using fit & proper test akin to SM&CR.

VI. Comparison - What You Need for Exam

Best Practice to Implement in Your Bank:

1. Draft 1-page Accountability Statement per accountable person under subsection 37F(1)(a) Banking Act format: "This statement describes areas of responsibility attributed"
2. Create Management Responsibilities Map illustrating how collectively
3. Link to Exception Approval Tracking - if exception fails, accountable person named in map is liable
4. Annual attestation regime similar to RBNZ: directors attest to accuracy of disclosure statements