The impetus for introducing the Senior Managers and Certification Regime (SMCR) derived originally from the 2008 financial crisis and the lack of accountability subsequently shown to be present in the banking sector when the dust had settled. It was anticipated by the regulatory bodies, including the PRA and FCA, that the SMCR would improve the conduct of individuals in banking boardrooms and enable holding them to account for their actions. However, the question arises: has the enforcement of individual accountability really impacted and improved the behaviour, governance and risk culture of individuals in the UK banking boardroom? Or is it a new recipe for continuity of existing behaviour, governance and risk culture instead?
This is the one of the aspects which I have explored from the perspective of NEDs as part of my now-completed PhD project. This research is based on thirty semi-structured interviews, mainly with experienced NEDs (male and female) who sit on main boards and audit and risk committees in the UK banking sector.
The findings of my PhD research project demonstrate that the FCA is intending to consider NEDs as ‘whistleblower champions’ in the banking boardroom field which is a so-called ‘restricted field’. By enforcing individual accountability, regulators are trying to empower NEDs , enabling them to participate in decision making independently, objectively and without conflict of interest. Is this possible in the practice? Would it be possible to break the existing vicious power structure within the field by enforcing the individual accountability? Are the regulators aware of existing realities in the field that might support or constrain achievement of these objectives?
The answer is ‘no’ because this has proved particularly difficult and challenging for NEDs, especially when they have to rely on – and trust – key management and executives, who are involved in day-to-day business, so heavily, including for an understanding of business processes and the adequacy of information disclosures. In addition, NEDs are often considered outsiders to the system and sufficient power is not transferred to them in practice due to the strongly rooted, prevailing and dominant social structures and culture in the field. By making NEDs accountable and personally penalised , NEDs perceive the SMCR as a threat and fear that this leads to a shift of blame to them in any future crisis. They perceive this new regime of individual accountability to be like “an elephant with big white teeth”. Regulation is large, noticeable and powerful. The rules are prominent, clear, and impactful, with significant consequences for those affected by them. These rules are also largely supportive of the reproduction or continuity of the dominant social structures in the field, rather than their successful replacement as required. So, in effect, they mainly reinforce and maintain the current power dynamics and social hierarchies instead of effectively challenging or changing them as needed.
Afshan Moeed (PhD) is a Lecturer in Accounting & Financial Management at The Open University Business School. She is an experienced researcher and she also has extensive experience within the financial services industry with corporate giants such as HSBC, Citi, and Bank Alfalah Limited.