PRA - SMR Amendments & Optimisations
We limit our comments to this proposal to the extension of conduct rules to non-executive directors and the guidance on the duty of responsibility.
Application of conduct rules to NEDs
We respond only to indicate our support for the proposal to extend the application of the conduct rules to all non-executive directors. It has always struck us as inconsistent and unfair that non-executive directors should be free from the requirement to uphold the standards of the conduct rules while fairly junior staff within the credit union would be subject to them.
We have had a number of members contact us to indicate support for this proposal. It is particularly relevant in the context of credit union governance where credit union boards are generally entirely non-executive and volunteer-based as well as being – since credit unions are smaller organisations – closer to day-to-day operations than might be the case in a large firm.
We appreciate that technical barriers to extending the regime in this way had to be removed before this was possible and we appreciate that this option has been taken at this opportunity. Provided the proposal is pursued, ABCUL will do what we can to communicate this to our membership.
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.
You can find the full PDF document available to download on the right hand side of the page