“Reasonable steps” is the legal test that gives the Senior Managers and Certification Regime (SM&CR) its force for individuals. Under the duty of responsibility, a senior manager is not automatically liable simply because something went wrong on their watch. They can be sanctioned if they failed to do what a competent person in their role could reasonably have been expected to do to prevent the breach. This makes senior accountability a concrete, evidenced standard rather than an abstract idea.
The statutory basis
The duty of responsibility is set out in section 66A(5) of the Financial Services and Markets Act 2000, inserted by the Bank of England and Financial Services Act 2016. It provides that the FCA may take action where a firm contravenes a relevant requirement, the senior manager was responsible for the management of any activities in relation to which the contravention occurred, and they did not take such steps as a person in their position could reasonably be expected to take to avoid the contravention occurring or continuing. Crucially, the regulator carries the burden of proving the failing.
What reasonable steps look like in practice
The FCA’s guidance, including DEPP 6.2.9-E onwards, frames reasonable steps around the manager’s role: understanding the business they are responsible for, maintaining effective governance and controls, delegating appropriately while retaining oversight, keeping adequate records, and responding to warning signs. The Statement of Responsibilities and management responsibilities map help define each manager’s perimeter, which is why keeping those documents accurate is itself a reasonable step.
Who it applies to
Approved senior managers in all FCA and PRA-regulated firms subject to SM&CR.
Related terms
SM&CR, SYSC and conduct risk.