Finance: wake | Photo credit: iStockphoto
The SMCR was introduced to prevent senior executives from escaping blame while lower-level staff suffered the consequences. It assigns personal responsibility, requires annual fitness tests, six years of legal references and criminal record checks. Banks grumbled that it was too prescriptive and burdensome, “using a sledgehammer to crack a nut.”
Now that the British government is under pressure to stimulate growth, it wants to cut red tape. In fact, the Ministry of Finance has completely replaced the SMCR. In July, the FCA launched a consultation to “streamline the rules” and “reduce the regulatory burden” on firms. It has led to fears that ‘streamlining’ could simply mean dilution.
Regulations often resemble a dam built after a flood. After the 2008 crisis, governments rushed to pour concrete (in the form of capital buffers, reporting rules and personal responsibility standards such as SMCR) to prevent reckless behavior. But as memories fade and political pressure mounts, small cracks begin to appear. A concession here, a lighter touch there. What starts as a trickle of deregulation can, over time, erode the entire edifice.
‘Tickbox’ hunt
Much of the existing surveillance technology focuses on individual culpability, not structural risks. The search for villains often ignores the way in which misbehavior takes root, that is, through culture rather than through characters. Current compliance systems rely on lexicon monitoring, which scans communications for words that could flag rogue trading or insider activity. The recent annulment of Tom Hayes’ benchmark manipulation conviction underlines the fragility of this approach and could deter regulators from pursuing complex prosecutions.
A vocal lobbying effort by financial companies is already underway. Looser rules could lower the bar for regulatory referrals, undoing years of progress in preventing “bad apples” from entering the system. The British debate is a warning: efficiency should not come at the expense of integrity.
India’s challenges
India’s own financial history reflects these challenges. The collapse of ILFS, DHFL, PMC Bank and governance failures at Yes Bank exposed murky chains of accountability, where boards and accountants often escaped censure while juniors got exposed to the music. The RBI and SEBI have tightened the ‘fit and proper’ criteria, but India still lags behind the personal legal liability that the SMCR attempted.
As India deepens its financial markets and strives to make GIFT City a global hub, regulators face the same tightrope: fostering innovation without sacrificing trust. Calls for lighter compliance burdens are growing louder, especially as fintechs and non-bank lenders push for faster approvals and simpler fit-and-proper checks. Yet London is reminding Mumbai that “streamlining” can be a euphemism for loosening the bolts that hold the buck in place.
India’s digital compliance systems are also following a British trajectory: automated trade surveillance on exchanges, AI-based transaction monitoring, keyword-driven fraud alerts in banks. These tools are useful, but they could repeat Britain’s mistake of prioritizing detection over understanding. True prevention lies in shaping the culture, not just counting compliance breaches.
The solution
So what’s the solution?
Regulators are increasingly open to experimentation. Ten years ago, the Dutch regulator (DNB) brought behavioral science under supervision. Today, the largest Dutch banks have internal behavioral risk teams investigating the ‘value-action gap’: the dissonance between what employees say they believe and what they actually do, shaped by human biases and organizational culture. The Dutch model shows how supervisors can move from supervision to culture building, from supervision of bad apples to taking care of the orchard itself.
The British debate on the SMCR is important far beyond London. As policymakers push for growth, the lesson is clear: trust is the ultimate currency in the financial world: it is slow to earn and quick to lose. The British dam of responsibility is showing cracks. India still has a chance to strengthen its own country before the waters rise.
The writer is a former executive director at Nomura and is currently a visiting faculty at several B-schools
Published on November 11, 2025
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