Individual Conduct and Accountability
Financial regulation does not apply only to firms.
It also applies to the people who work within them.
After all, people make the decisions that affect customers.
For example, individuals:
- give mortgage advice
- speak to customers
- supervise staff
- manage risks
- make important business decisions
Therefore, people working in financial services can have personal responsibilities.
The basic idea is simple:
Individuals should be accountable for their own conduct.
For mortgage advisers, this means behaving honestly, working carefully and taking responsibility for the advice they provide.
Why Does Individual Accountability Matter?
A financial firm is an organisation.
However, an organisation can only act through people.
Therefore, when something goes wrong, it is important to understand:
Who was responsible?
In the past, responsibility within large financial firms could sometimes become unclear.
For example, one department might blame another.
Meanwhile, senior managers might argue that they did not know who was responsible.
Therefore, regulation has developed to make individual responsibility clearer.
The Senior Managers and Certification Regime
A major part of individual accountability is the:
Senior Managers and Certification Regime
Usually shortened to:
SM&CR
The regime helps make people within financial firms more accountable for their conduct.
Broadly, it has three important parts:
Senior Managers Regime
↓
Certification Regime
↓
Conduct Rules
Each part has a different purpose.
A Simple Way to Understand SM&CR
Think of SM&CR as three layers.
Senior Managers
Who is responsible for important parts of the firm?
↓
Certification Staff
Which employees could cause significant harm through the work they perform?
↓
Conduct Rules
How should people working within the firm behave?
Therefore:
SM&CR connects responsibility, competence and conduct.
The Senior Managers Regime
The Senior Managers Regime applies to people carrying out certain important roles.
These roles are known as:
Senior Management Functions
or:
SMFs
Depending on the type of firm, senior managers may be responsible for areas such as:
- overall management
- compliance
- risk
- finance
- important business functions
Therefore, the regime helps make responsibility clearer at senior level.
What Is a Senior Management Function?
A Senior Management Function is a specified senior role that can have an important influence over a regulated firm.
For example, depending on the type of firm, relevant roles can include:
- chief executive
- executive director
- compliance oversight
- money laundering reporting
However, not every firm has exactly the same Senior Management Functions.
Therefore, the requirements depend partly on the firm’s size, structure and regulatory status.
FCA Approval of Senior Managers
People performing relevant Senior Management Functions generally need FCA approval before carrying out those roles.
Therefore, a firm cannot simply place someone into an FCA-controlled senior position without considering the regulatory requirements.
The FCA needs to be satisfied that the person is suitable.
This leads to another important concept:
Fit and proper
What Does Fit and Proper Mean?
People performing certain regulated roles need to be fit and proper.
In simple terms:
They need to be suitable for the job.
Three important areas are considered:
Honesty, Integrity and Reputation
Can the person be trusted?
Competence and Capability
Can the person do the job properly?
Financial Soundness
Are there financial circumstances that could affect their suitability?
Therefore, professional suitability involves more than technical knowledge.
Honesty and Integrity
Financial professionals deal with important information and decisions.
Therefore, honesty is essential.
For example, a mortgage adviser should never knowingly:
- falsify income
- alter documents
- hide debts
- mislead a lender
- deceive a customer
Even an adviser with excellent technical knowledge could create serious problems if they behave dishonestly.
Therefore:
Competence without integrity is not enough.
Competence and Capability
A person also needs enough knowledge and ability to perform their role properly.
For a mortgage adviser, this can include understanding:
- mortgage products
- regulation
- affordability
- customer circumstances
- mortgage risks
- the advice process
CeMAP helps provide important technical knowledge.
However, passing an examination does not automatically make someone fully competent in every real-life situation.
Therefore:
Qualification
↓
Training
↓
Supervised experience
↓
Competence
This is an important distinction.
Qualification Versus Competence
Imagine Sophie has just passed CeMAP.
She understands:
- mortgage regulation
- repayment methods
- interest rates
- mortgage products
However, she has never conducted a complete mortgage interview with a real customer.
Therefore, she may still need:
- supervision
- practical training
- file reviews
- experience
As a result:
Qualified does not always mean immediately fully competent.
Practical competence develops alongside knowledge.
Financial Soundness
Financial soundness is another part of fitness and propriety.
However, this does not mean someone needs to be wealthy.
Instead, relevant financial circumstances may be considered when assessing whether a person is suitable for a regulated role.
Therefore, the assessment looks at the overall position rather than simply someone’s income or savings.
Statements of Responsibilities
Senior Managers generally have a Statement of Responsibilities.
This explains what the individual is responsible for.
For example:
Senior Manager A
↓
Responsible for a particular important area.
Meanwhile:
Senior Manager B
↓
Responsible for another area.
Therefore, if a serious problem occurs, it should be easier to identify who had responsibility.
Why Clear Responsibility Matters
Imagine a mortgage firm has serious problems with adviser supervision.
Customer files repeatedly show poor advice.
However, nobody takes action.
Without clear responsibilities, several managers might say:
I thought someone else was dealing with it.
A clear allocation of responsibility makes this less likely.
Therefore:
Important responsibilities should have clear ownership.
The Duty of Responsibility
Senior Managers also have a Duty of Responsibility.
Broadly, where a firm breaches an FCA requirement in an area for which a Senior Manager was responsible, the FCA can consider whether that manager took reasonable steps to prevent or stop the breach.
Therefore, holding a senior position brings real responsibility.
A manager cannot simply have their name attached to an area while ignoring what happens within it.
What Are Reasonable Steps?
What counts as a reasonable step depends on the circumstances.
However, examples could include:
- providing proper supervision
- responding to warning signs
- checking important information
- dealing with identified problems
- delegating responsibly
- following up after concerns arise
Therefore, senior managers need to manage their responsibilities actively.
A Senior Manager Example
Imagine compliance reports show that several mortgage advisers are giving poor advice.
The same problem appears month after month.
However, the senior manager responsible for the area ignores the reports.
Eventually, customers suffer losses.
The FCA may consider whether the manager took reasonable steps to address the problem.
Therefore:
Ignoring a known problem can create personal accountability.
The Certification Regime
Not every important employee is a Senior Manager.
Therefore, there is also the Certification Regime.
This applies to certain employees whose roles could create a risk of significant harm to:
- customers
- the firm
- the wider financial system
These people are known as certification staff.
Who Certifies Certification Staff?
There is an important difference between Senior Managers and certification staff.
Senior Managers
Relevant Senior Managers are approved by the FCA.
Meanwhile:
Certification Staff
The firm assesses whether they are fit and proper for their certification function.
Therefore, the FCA does not individually approve every person covered by the Certification Regime.
Instead, firms have responsibility for assessing relevant employees.
Certification Is Ongoing
Certification is not simply completed when someone starts their job.
Instead, firms need to reassess relevant employees regularly.
Generally, certification must be renewed at least annually.
Therefore:
Assess fitness and propriety
↓
Issue certificate
↓
Employee performs role
↓
Review again
This helps make sure competence and suitability are maintained.
Mortgage Advisers and Certification
Mortgage advisers can fall within the Certification Regime where the relevant requirements apply.
Therefore, passing CeMAP may be only one part of becoming and remaining competent.
The firm may also need to consider:
- knowledge
- practical ability
- conduct
- experience
- ongoing competence
As a result:
CeMAP is an important qualification, but professional responsibility continues after the exam.
The Conduct Rules
The third major part of SM&CR is the Conduct Rules.
These set basic standards of behaviour for many people working in regulated financial services.
They are important because they bring regulatory responsibility down to the individual level.
The individual Conduct Rules require relevant people to:
- act with integrity
- act with due skill, care and diligence
- be open and cooperative with regulators
- pay due regard to customers’ interests and treat them fairly
- observe proper standards of market conduct
- act to deliver good outcomes for retail customers, where applicable
Therefore, the Conduct Rules provide a useful guide to professional behaviour.
Conduct Rule 1: Act With Integrity
The first rule is straightforward:
Act honestly.
For a mortgage adviser, this means never knowingly using false information.
For example, an adviser should not:
- increase a customer’s income
- hide a loan
- change employment information
- alter documents
- mislead the lender
Therefore, honesty comes before getting the mortgage approved.
A Mortgage Example
Imagine a customer earns:
£32,000 a year
However, the mortgage they want requires a higher income.
The customer says:
Put £40,000. My overtime will probably take me there eventually.
The adviser cannot knowingly enter a false figure.
Instead, the application must use appropriate and accurate information.
Therefore:
Never change the facts to make the mortgage fit.
Conduct Rule 2: Skill, Care and Diligence
The second rule requires individuals to work competently and carefully.
Therefore, mortgage advisers should:
- gather relevant information
- check important details
- understand the products they recommend
- explain risks
- maintain suitable records
An adviser does not need to be dishonest to cause harm.
Carelessness can also create serious problems.
A Carelessness Example
Imagine a customer tells their adviser:
I expect to move in about 18 months.
However, the adviser recommends a five-year fixed mortgage with a large early repayment charge.
The adviser simply forgot to consider the customer’s moving plans.
There may have been no dishonesty.
Nevertheless, the advice may show a lack of proper care.
Therefore:
Good intentions do not replace careful advice.
Conduct Rule 3: Be Open and Cooperative
Individuals must be open and cooperative with the:
- FCA
- PRA
- other relevant regulators
Therefore, they should not deliberately:
- hide important information
- provide false information
- obstruct regulatory enquiries
Financial regulation depends on accurate information.
As a result, openness with regulators is an important professional responsibility.
Conduct Rule 4: Customers’ Interests
Individuals must pay due regard to customers’ interests and treat them fairly.
For example, an adviser should not:
- exploit a customer
- hide important disadvantages
- use unfair pressure
- put personal reward ahead of customer needs
This is an important area.
Therefore, we will explore Treating Customers Fairly properly on Page 20 rather than covering it in detail here.
For now, remember:
Customer interests matter throughout the advice process.
Conduct Rule 5: Market Conduct
Individuals must observe proper standards of market conduct.
In simple terms:
Behave properly within financial markets.
This helps protect confidence and integrity within the financial system.
We will examine financial crime and market abuse later in the course.
Therefore, we only need the basic principle here.
Conduct Rule 6: Good Customer Outcomes
An additional Conduct Rule applies where the relevant Consumer Duty requirements apply.
It requires individuals to:
Act to deliver good outcomes for retail customers.
This strengthens the focus on what customers actually experience.
However, Consumer Duty deserves its own explanation.
Therefore, we will cover it fully on Page 21.
For now, remember:
Conduct Rule 6 → Good retail customer outcomes
Senior Manager Conduct Rules
Senior Managers have additional Conduct Rules because they have greater responsibility.
Broadly, these require Senior Managers to take reasonable steps to:
- control their area effectively
- ensure regulatory requirements are followed
- delegate responsibly
- provide appropriate information to regulators
Therefore:
Greater authority brings greater responsibility.
Senior Managers are expected to oversee their areas rather than simply rely on junior employees.
Delegation Does Not Remove Responsibility
Senior Managers do not need to perform every task personally.
They can delegate.
However, delegation needs to be appropriate.
For example:
Senior Manager
↓
Delegates compliance task
↓
Competent employee performs task
↓
Senior Manager maintains appropriate oversight
Therefore:
You can delegate a task, but you cannot simply forget about your responsibility.
What If a Manager Gives an Improper Instruction?
Imagine a manager tells a mortgage adviser:
Don’t mention the large fee unless the customer asks.
The adviser knows this could give the customer a misleading picture.
Therefore, simply saying:
My manager told me to do it
does not automatically remove the adviser’s own responsibility.
Individuals have conduct obligations too.
As a result, advisers may need to use appropriate internal escalation procedures when they are asked to act improperly.
Regulatory References
Regulated firms may need to obtain regulatory references for certain new employees.
These can provide relevant information about a person’s regulatory and conduct history.
Therefore, serious misconduct may follow someone when they move between financial firms.
This helps prevent individuals from simply moving to another business without important conduct information being considered.
A Regulatory Reference Example
Imagine an adviser is dismissed for deliberately falsifying mortgage applications.
Later, they apply for a relevant role with another regulated firm.
A regulatory reference can help the new firm discover important information about that previous conduct.
Therefore, regulatory references support:
- accountability
- customer protection
- better recruitment decisions
As a result, serious misconduct can have long-term career consequences.
Conduct Rule Breaches
A breach of the Conduct Rules can have consequences.
Depending on the circumstances, a firm may take action such as:
- additional training
- closer supervision
- disciplinary action
- removal from a role
- dismissal
In addition, certain Conduct Rule breaches may need to be reported to the FCA.
Therefore, the Conduct Rules are not simply general suggestions.
They are regulatory standards.
FCA Action Against Individuals
The FCA can also take action against individuals in appropriate circumstances.
Depending on the seriousness of the matter, consequences can include:
- financial penalties
- restrictions
- withdrawal of approval
- prohibition
- public enforcement action
Therefore:
Regulatory accountability can be personal.
Serious misconduct can affect someone’s ability to continue working in financial services.
Prohibition Orders
The FCA can use a prohibition order to prevent an individual from performing certain functions in regulated financial services.
A prohibition can vary in scope.
For example, it could prevent someone from performing:
- a particular type of function
or, in serious circumstances:
- a much wider range of financial-services activities
Therefore, serious conduct problems can have major professional consequences.
Training and Competence
Mortgage advisers need appropriate knowledge and competence.
However, financial services change over time.
For example:
- regulations change
- mortgage products change
- lender criteria change
- economic conditions change
- customer expectations change
Therefore, advisers need to keep their knowledge current.
This is why training does not stop when CeMAP is completed.
Continuing Professional Development
You may hear the term:
Continuing Professional Development
or:
CPD
CPD means continuing to develop professional knowledge and skills after initial qualification.
For a mortgage adviser, this might include learning about:
- regulatory changes
- mortgage products
- vulnerable customers
- Consumer Duty
- financial crime
- changes in the mortgage market
Therefore:
Professional learning should continue throughout an adviser’s career.
Supervision of New Advisers
A newly qualified adviser may need additional supervision.
For example, a firm may:
- review their files
- observe customer meetings
- check recommendations
- provide coaching
- assess competence
Therefore, supervision can help bridge the gap between:
Exam knowledge
and:
Real-world advice
As experience grows, the adviser may eventually be assessed as competent to work with less supervision.
Individual Responsibility and Record Keeping
Good records can help show how an adviser reached a decision.
For example, a mortgage file might show:
Customer circumstances
↓
Customer needs
↓
Options considered
↓
Recommendation
↓
Reasons for recommendation
Therefore, good record keeping supports accountability.
If a question arises later, the file can help explain what happened and why.
A Record-Keeping Example
Imagine a customer tells the adviser:
I expect to receive a large inheritance next year and want to repay part of my mortgage.
That information could affect the mortgage recommendation.
Therefore, it should be recorded appropriately.
Later, the file should make clear how the customer’s expected overpayment needs influenced the advice.
As a result:
Important information should leave a clear advice trail.
Responsibility Runs Through the Whole Advice Process
Individual accountability is not something an adviser thinks about only when something goes wrong.
Instead, it should run through the whole customer journey.
For example:
Gather accurate information
↓
Understand the customer’s needs
↓
Work within your competence
↓
Consider appropriate options
↓
Explain the recommendation clearly
↓
Keep suitable records
↓
Follow firm procedures
Therefore, accountability is part of everyday professional practice.
Firm Responsibility Versus Individual Responsibility
It is useful to separate these two ideas.
The Firm
Is responsible for matters such as:
- systems
- controls
- supervision
- governance
- compliance arrangements
Meanwhile:
The Individual
Is responsible for matters such as:
- personal conduct
- honesty
- competence
- careful work
- following applicable rules
Therefore, good regulation requires both.
A well-run firm still needs responsible individuals.
Likewise, a good adviser needs an appropriate regulatory structure around them.
A Simple Memory Aid
For individual accountability, remember:
Be honest.
↓
Be competent.
↓
Take care.
↓
Know your responsibilities.
↓
Follow the rules.
↓
Keep learning.
↓
Take responsibility for your actions.
These ideas capture much of what individual accountability is designed to achieve.
Key Terms to Remember
SM&CR
Senior Managers and Certification Regime.
Senior Management Function
A specified senior role carrying important responsibility within a regulated firm.
Statement of Responsibilities
A document setting out a Senior Manager’s responsibilities.
Duty of Responsibility
The responsibility of a Senior Manager to take reasonable steps within areas for which they are accountable.
Certification Regime
The system under which firms assess the fitness and propriety of certain employees performing certification functions.
Fit and Proper
Being suitable to perform a relevant financial-services role.
Conduct Rules
FCA standards governing the behaviour of relevant individuals.
Regulatory Reference
Information shared in relevant circumstances about an individual’s regulatory and conduct history.
CPD
Continuing Professional Development.
Prohibition Order
An FCA measure preventing an individual from carrying out specified financial-services functions.
Quick Knowledge Check
1. What does SM&CR stand for?
Senior Managers and Certification Regime.
2. What are its three main parts?
Senior Managers Regime, Certification Regime and Conduct Rules.
3. What is a Senior Management Function?
A specified important senior role within a regulated firm.
4. What three broad areas are important when considering whether someone is fit and proper?
Honesty, integrity and reputation; competence and capability; and financial soundness.
5. Who normally assesses certification staff?
Their firm.
6. How often is certification generally renewed?
At least annually.
7. What is the first individual Conduct Rule?
Act with integrity.
8. Does passing CeMAP automatically mean someone is fully competent in every practical situation?
No. Training, supervision and practical experience may also be needed.
9. Can an adviser automatically avoid responsibility by saying a manager told them to act improperly?
No. Individuals have their own conduct responsibilities.
10. What does CPD stand for?
Continuing Professional Development.
Quick Summary
Financial regulation applies to individuals as well as firms.
A major part of this framework is:
SM&CR — Senior Managers and Certification Regime
It has three important parts:
Senior Managers
↓
Clear responsibility for important areas.
Certification Staff
↓
Firms assess whether relevant employees remain fit and proper.
Conduct Rules
↓
Individuals must meet appropriate standards of behaviour.
For mortgage advisers, the central message is straightforward:
Act honestly.
Work competently.
Take proper care.
Follow appropriate procedures.
Maintain your knowledge.
Take responsibility for your actions.
Meanwhile, remember that:
Qualification is not exactly the same as competence.
CeMAP provides important knowledge.
However, practical training, supervision and experience can also be needed.
Most importantly:
Responsibility does not belong only to the firm.
The people working within financial services are also accountable for how they behave.
This prepares us for the next important area: how customers should be treated.
Next Page
Treating Customers Fairly