New rules on regulatory references come in force in one month. Are you ready?

09 February 2017

The new rules in relation to regulatory references, which form part of the senior managers and certification regime, come into force in one month’s time on 7 March 2017. The new rules will apply to banks, building societies, credit unions and PRA-designated investment firms, branches of foreign banks as well as large insurance and reinsurance firms.

HR teams at affected firms are likely to have much of the responsibility for implementing the new rules and should now be finalising their preparations.

Do you know what the rules require?

Firms covered by the regime will be required to take reasonable steps to obtain references from former employers of individuals applying for regulated roles with them. The references should cover the candidate’s employment in the previous six years and must be requested from all types of employer, regardless of their regulated status. The reference must be obtained before the regulators approve an individual as a senior manager or before a firm can issue a certificate as fit and proper to an individual covered by the certification regime.

In response to a reference request, a regulated firm should provide all information relevant to the hiring firm’s fit and proper assessment and the expectation is that such a response should be provided within six weeks of the request. The FCA / PRA have also designated certain mandated information to be provided:

• any conclusion in the previous six years that the individual was not fit and proper to perform a function or was in breach of conduct rules; and

• any disciplinary action as a result of the above (e.g. formal written warnings, suspension, dismissal and related reduction or recovery of remuneration).

The requirement to provide this information only covers the six years before the date the reference is provided although there is no time limit in relation to information concerning ‘serious’ misconduct.
Additionally, in certain circumstances, regulatory references that were previously provided will need to be updated.

Finally, HR should not forget general rules on exercising due care and skill when providing references to ensure that they are true, accurate and fair.

Have you familiarised yourself with the mandatory template?

The FCA has produced a mandatory template to be used when providing a regulatory reference.
Firms can make changes to the template’s format so long as this does not affect the information that needs to be disclosed, but it is likely that most firms will use the mandatory template. The template can be found in Annex 1 to SYSC 22 of the FCA Handbook – click here.  

Has your HR documentation been updated?

The provisions of employment contracts and settlement agreements issued to employees should not conflict with a firm’s obligation to provide regulatory references. Template documents should therefore be updated as soon as possible.

Are your internal systems ready?

Record keeping systems, policies, processes and suitable training should be in place to ensure compliance with the new rules, ensuring that regulatory references are obtained where required, reference requests are dealt with by staff who know what the rules involve, and references are updated where necessary.

If you or your organisation would like assistance on how the new rules impact you and how to respond, please contact a member of the CMS employment team. In addition, if you would like further information on other elements of the senior managers and certification regime, CMS offers an e-learning module on the regime – click here for details.

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