Compliance Matters talks to Andrea Finn (pictured) of the City law firm of Simmons & Simmons about the British government's climb-down over its plans to force senior managers at banks to prove that they are taking all reasonable steps to stop their firms from breaking the rules.

Senior bankers in the United Kingdom have reason to be grateful that it is their institutions that rule the British people rather than the other way around. HM Government's Bank of England and Financial Services Bill, introduced yesterday into the House of Lords, proposes to extend the Senior Managers and Certification Regime to all financial service firms but also to introduce a ‘duty of responsibility’ rather than the dreaded ‘reverse burden of proof.’

Andrea Finn told Compliance Matters: "This is broadly good news for banks, building societies and credit unions, because the reverse burden of proof has gone from the proposals. The Government is saying that the new duty of responsibility is something that all individuals should be discharging already and that they're just making it explicit for the first time. The organisations subject to the first wave of the Senior Managers Regime (SMR) will be reassured by this.

"As anticipated, the Treasury has decided to roll out the whole regime to practically everybody else in financial services. The new regime is in three parts: the certification regime, the conduct rules, and the SMR (originally for banks, building societies and credit unions) which is timed to come in in March (although a few details have been changed). Alongside the SMR is the Senior Insurance Managers' Regime, timed for March too."

An accompanying policy paper contains indicative figures for the number of firms and individuals in the existing Approved Persons Regime, the SM&CR that is coming into force for banking, and estimates of the numbers that may be caught by the extended regime. Under the proposed extended SM&CR the Government expects 3,400 senior managers and 1,000 certified persons to come from the insurance sector (which currently contains 580 firms and 4,400 approved persons), it expects 43,900 senior managers and 62,000 certified persons to come from investment firms (the existing figures here are 17,200 and 106,000) and it expects 45,000 senior managers and 3,000 certified persons to come from consumer credit firms (42,000 and 50,000). The Financial Conduct Authority provided the estimates.

Andrea Finn went on: "The Treasury is proposing to bring the extended regime into operation in 2018. At this stage, it is worth noting that the Treasury policy paper explicitly refers to the importance of 'proportionate application' to a wide range of firms of very different sizes – this will be a key part of implementation and consultation."

This is undoubtedly the Government's way of grapping with an increasingly obvious drawback of financial regulation - that it is becoming so onerous as to present small firms with high barriers to entry into the market, thereby rewarding existing 'dinosaur' firms for their economies of scale in compliance. Andrea Finn thought that the Government's re-statement of interest in its age-old policy in favour of 'proportionality' (a buzz-word under the old Financial Services Authority, especially in its earliest days) would at least help alleviate the problem.

The Bank of England and Financial Services Bill also proposes to:

• shrink the Bank of England's so-called court of directors;
• force the Monetary Policy Committee (MPC) to hold at least eight meetings a year;
• transfer the Prudential Regulation Authority into the Bank, ending its status as a subsidiary, while establishing a new Prudential Regulation Committee (PRC);
• make changes to the Financial Policy Committee (FPC);
• place the new post of Deputy Governor for Banking and Markets on the statute book, appointing the holder to the Court of Directors and the FPC;
• subject the Bank to cost-benefit analyses by the National Audit Office (NAO) for the first time;
• strengthen co-ordination between the Treasury and the Bank in the event of bank failures;
• extend the scope of the 'Pension Wise' guidance service to advise pensioners who are thinking of selling their annuities when new 'flexibilities' are introduced in 2017; and
• make changes to the Scottish and Northern Irish banknote issuance regime.

The head of the NAO has stated in public that he is outraged at the clause in the Bill that allows the Bank of England's board of directors to shield whatever information it likes from the auditors' scrutiny. This has never been allowed before and some are seeing it as the thin end of the wedge.