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senior management regime and regulatory references

17 March 2017

As of 7 March 2017, firms authorised by the Financial Conduct Authority (FCA) (including approximately 1,700 banks, building societies, insurers and major investment firms) are subject to a stricter regime in terms of obtaining, and providing, employment references. 

 

This new regime applies to potential candidates for positions of particular seniority (e.g. Chief Executive Officer, Chief Financial Officer) or positions with high risk responsibilities (e.g. client asset managers) (known as 'Regulatory References'). This information must also be provided in the specific form set out in the FCA Handbook.

These stricter requirements come on the back of the Senior Managers and Senior Insurance Managers Regimes (SMR/SIMR) which were introduced by the FCA and Prudential Regulation Authority (PRA) in March 2016 (replacing the previous Approved Persons Regime) to assist employers in the finance and insurance sectors when assessing whether or not candidates are ‘fit and proper’ individuals and create a stronger culture of ‘individual accountability’.   

Under the new regime the hiring employer must take reasonable steps to obtain specific details about the candidate over the preceding six years, including:

  • whether they have performed a role involving functions which could cause significant harm to the firm or its clients, or have been an approved person
  • whether any disciplinary action has been taken against the individual in relation to a breach of an individual conduct requirement as specified by the FCA or PRA conduct rules 
  • a factual description of the breach including dates, the basis for disciplinary action and its outcome 
  • any other information which may be pertinent to the assessment of whether or not the individual is fit and proper.

Under the new regime firms are expressly prohibited from entering into arrangements which may conflict with their duty to provide a Regulatory Reference and any such agreements will be ineffective. This is aimed at preventing individuals from seeking to evade responsibility for acts of misconduct whilst employed by one employer by seeking an agreed reference in return for a promise to end their employment and move elsewhere. 

These new rules bring into sharp focus the significance of disciplinary action in the relevant financial and insurance sectors and the fact that employees must take responsibility for their actions. 

It is expected that the new regime may influence the approach that employees take in response to allegations of misconduct and employers may notice that such allegations are more strenuously challenged, even via tribunal proceedings if the employee considers that this will clear their name and preserve their career.

Relevant employers will need to review their reference policies to ensure that it complies with the new SMR/SIMR.

Click here to view the FCA's template regulatory reference.

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