Whilst the purpose of the SMR is to enhance individual accountability, we are also putting greater emphasis on the responsibilities of Boards. We have made clear to firms that we expect Boards to take collective responsibility for establishing strategy, setting the risk appetite, monitoring risk across the business and holding management to account. Boards should also articulate and maintain a culture of risk awareness and ethical behaviour. Collective responsibility and individual accountability can and should complement each other. 8  The Bank of England has applied the Senior Managers Regime to itself. Further information including the Responsibilities map and allocation of Prescribed Responsibilities can be found at: http://www.bankofengland.co.uk/about/Documents/smr.pdf 9 Documentation relating to strengthening accountability (including the Senior Managers Regime, Certification Regime, Conduct Rules, Board Responsibilities and Regulatory References) can be found at: http://www.bankofengland.co.uk/pra/Pages/supervision/strengtheningacc/default.aspx 4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4  Many of the individuals found guilty of misconduct had moved from firm to firm with no record of their misdeeds shared with future employers. To address this problem of ‘rolling bad apples’ the UK authorities have put in place a mandated form for regulatory references for key staff. These references will provide prospective employers with more information on the past conduct of staff including internal disciplinary action and any other information relevant to the candidate’s fitness and propriety. This initiative will help to prevent the problem of staff with poor conduct records moving from firm to firm based on anodyne references.

‘Hard law’ and ‘Soft Law’ We cannot expect misconduct to never occur in financial markets – history has taught us that there will always be individuals prepared to do the wrong thing if there is a reward. But we can reduce the frequency and severity of misconduct and we can increase the likelihood that it will be detected and punished. Given how quickly financial markets evolve and the practicalities of regulation, this can best be achieved by a combination of ‘hard law’ (legislation and regulation by the official sector), ‘soft law’ (codes and standards defined collectively by market participants), and culture (norms and practices created by firms’ Boards and management). The authorities obviously have a role to play. Regulators must introduce rules and regulations to enforce minimum standards of conduct, hold individuals to account for their actions, and put in place incentives to promote good conduct. But hard law is not enough. Even in jurisdictions with a preference for ‘hard law’ solutions, issues of interpretation and norms arise. Regulators cannot police every market practice, especially in fast moving markets, nor can they dictate a firm’s culture. However, authorities can use their convening power to bring together market participants to solve collective action problems, set expectations on behalf of broader society about expected behaviours and provide incentives to encourage adherence to voluntary market standards. This is where industry leadership is vital.