FCA - Guidance On The Duty Of Responsibility
Credit unions are generally small firms with a limited management structure and volunteer governance model engaged in a straightforward savings and loans business model. The implications of a regulatory breach by an SMF in a credit union, while always serious, are therefore likely to be limited in consequence relative to those in a large firm dealing with many more consumers. Similarly, with limited resources, the extent to which a credit union senior manager can reasonably be expected to take steps to prevent a regulatory breach are limited relative to larger firms with more significant resources.
This being so, we are encouraged by the inclusion of recognition in the guidance that the regulator will take into account the "scale, nature and complexity of the firm". This will be particularly important in relation to consideration of steps that a credit union might be reasonably expected to take in order to prevent a breach. Systems of management information, for example, are likely to be more limited and rudimentary than those available to a larger firm. Similarly, the guidance refers to taking independent advice and expertise in relation to prevention of rule breaches – firms with limited resources are likely to find more difficulty in accessing such advice and expertise.
It is vital that proportionality is embedded throughout the application of the duty of responsibility. While we would never object to the principle that credit unions should take all reasonable steps to prevent regulatory breach, this must be clearly linked to the implications of the breach and the resource limitations a firm is subject to.
Finally, we are also encouraged by the recognition in the consultation of collective decision making. Credit unions, as co-operative societies with elected, volunteer boards, value highly the principle of collective board responsibility. While we appreciate that such responsibility is not necessarily at odds with personal accountability, there has been widespread concern that the narrowing of regulatory accountability to a smaller number of senior managers may undermine the collective responsibility of the board. It is therefore encouraging that the guidance recognises this potential conflict and makes clear that collective decision-making is compatible with personal accountability provided that the responsible senior manager does all that they can to inform and influence any collective decision affecting their area of responsibility.
We would be happy to discuss this further should you wish to.
The full PDF of the consultation response can be found on the right hand side of the page.