TECHNIC AL
Attestations Personal accountability for senior management
DAVID HEFFRON, ADDLESHAW GODDARD T
he practice of requiring senior management to attest to their firm’s compliance with regulatory requirements is becoming
increasingly common and causing significant concern. This briefing looks at the regulators’ use of this supervisory tool, particularly the Financial Conduct Authority’s (FCA), and provides an overview of what senior managers and firms should consider when asked to provide one. Given the potentially serious personal and professional consequences where regulators subsequently question an attestation, they should not be given without careful consideration and necessary due diligence.1
Accountability One of the frequent complaints by the public of the FCA’s predecessor was that while authorized firms might be fined for misconduct, their senior managers were rarely held accountable. In the aftermath of the financial crisis and in the absence of any significant disciplinary action against the senior executives of failed banks, the regulatory climate has changed and the use of attestations as a supervisory tool should be seen in this context. The FCA has published 10 principles of supervision, one of which specifically refers to individual accountability: “An emphasis on individual accountability, ensuring senior management understand that they are personally responsible for their actions – and that we will hold them to account when things go wrong.”2 Moreover, in its 2015 Business Plan, the FCA states that “the accountability of individuals in positions of responsibility needs to be improved and overall standards of governance raised.” One of the ways that this concept has been “embedded” is through the growing use of requiring the giving of attestations by senior managers.3
In a recent speech Clive Adamson, FCA director of supervision, referring to the new senior managers and certified persons regime to be implemented in 2015, stated:
“[T]his should be seen as part of a more comprehensive approach to individual accountability including the use of attestations, where we ask senior individuals to attest to us in relation to a supervisory action... We will want to use these tools in an effective but proportionate way so it should be clear that there will be significant cost to individuals if conduct issues in retail or wholesale markets occur on their watch.”4
The use of attestations, unlike other parts of the regulatory tool kit, has developed away from the public eye and scrutiny. Partly for these reasons there exists considerable disquiet by firms and managers over their use and uncertainty about their effect. This was recently reflected in an exchange of correspondence between the FCA’s director of
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Notification: For emerging risks at firms which are unlikely to result in material consumer detriment or negative impact on market integrity, we may ask an appropriate individual at a firm to attest that they will notify us if the risk changes in its nature, magnitude or extent. The responsibility on the person making the attestation is to ensure that the firm appropriately monitors the risk and makes any notifications which are appropriate to us.
Undertaking: Where we want a firm to take specific action within a particular timescale, but the risk is one which is unlikely to result in material consumer detriment or negative impact on market integrity, we may ask for an attestation undertaking that the action will be taken.
Self-certification: For more significant issues, but where we are confident that the firm can resolve the issue itself, we may ask for an attestation that the risks have been mitigated or resolved.
Verification: In cases in which we not only want a firm to resolve issues or mitigate risks but we also want verification of that, we may ask for an attestation confirming that the action, including verification as appropriate (e.g., by internal audit), has been done.
be asked to attest, it is most usual for the person holding the most relevant significant infuence function to be asked.
Aspects of the FCA’s new more judgment-led and interventionist style can be seen here with supervisors scrutinizing firms’ product governance and seeking assurances from firms without wishing to expend finite supervisory resource. The FCA say they will not usually wish to see any evidence to support the attestation although the presumption is that this will exist and it reserves the right to do so. As discussed below, it is advisable not only to carry out appropriate due diligence but to keep a record of the steps undertaken. There are four principal types of attestations: notifications, undertakings, self-certifications and verifications. For the FCA’s description of each please see the box.
What are the concerns? There are a number of significant issues some of which have been articulated by the FCA practitioner panel:
• Uncertainty over the legal status of attestations;7 • Uncertainty over the consequences to individuals of providing attestations and in consequence to their firms;
• Apparent inconsistencies in their use by different supervisors indicating governance and monitoring issues;
• Limited transparency where no guidance about their use has been published and there only exists internal guidance privy only to supervisors; and
• Skewing prioritization of risk at firms where considerable focus and resources have been devoted to issues where attestations have been required.
Legal basis The FCA refers to attestations as now constituting a formal supervisory tool.8 There is, however, no express reference to them in either the Financial Services and Markets Act 2000 (FSMA) or the regulators’ rulebooks.
supervision and Graham Beale, chairman of the FCA practitioner panel, when the opportunity was taken to explain in greater detail the FCA’s approach.5
What are attestation clauses? Attestations are supervisory, not enforcement tools. The plain dictionary meaning of the word “attest” is to declare that something exists or is the case. According to the FCA, attestations are used to obtain a personal commitment from an approved person at an authorized firm that a specific action has been or will be taken. Apart from personal accountability, the tool seeks to place a “senior management focus” on specific issues where the FCA wishes to see change without the regulator itself having to become involved.6 While any approved person may
High-level principles The FCA relies on the Statements of Principle and Code of Practice for Approved Persons (APER), and in particular Principle 7, which states:
“An approved person performing an accountable significant-influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his accountable function complies with the relevant requirements and standards of the regulatory system.”
This is supported by examples provided, at APER 4.7, of the types of conduct which comply with this principle.9 In this context, the provision of an
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