Insights overview

Managing regulatory references – BSB launches Consultation

The Banking Standards Board (“BSB”) has launched a consultation seeking views on proposed guidance to assist firms in meeting their obligations under the Senior Managers and Certification Regime in respect of regulatory references.

By way of reminder, regulated firms subject to the application of the Senior Managers and Certification Regime (“SMCR”) have an obligation to request regulatory references in respect of any individual they are proposing to appoint to perform a senior management function or in respect of whom they are proposing to issue a certificate under certification element of SMCR. References should be requested from the individual’s current employer and any firm who has been the individual’s employer in the previous six years. Firms have a corresponding obligation to provide such references, on request, as soon as is reasonably practicable.

Under SMCR, firms providing references in this respect are required to include information relating to breaches by the individual of COCON, the section of the FCA’s handbook detailing the Conduct Rules applicable to individuals in SMCR firms. However, where there is slightly “greyer” information regarding individuals’ conduct, and given the focus on #metoo type conduct, firms have found it harder to know what to say, needing to balance both their regulatory and employment law obligations. Some have given full details, whereas others have provided much less. This has led to some employees feeling that their future job prospects are being unnecessarily and unjustifiably damaged. This is all the more so, given that Certified population staff can no longer rely on the regulator to grant them approval to work in the financial services sector, and are therefore entirely dependent on favourable references being given by their current or former employers.

The BSB’s proposed guidance aims to address three specific areas of concern over the provision, content and use of regulatory reference by setting out the following core principles:

Fairness – references should be fair to the individual about whom they are written, but without compromising the integrity of the references, and should also be used fairly by the firm receiving the reference;
Proportionality – firms should adopt a proportionate approach to fulfilling their obligations, especially in taking reasonable steps to identify and verify relevant information and in considering issues raised by regulatory references;
Consistency – firms should ensure that their use of references and the treatment of individuals subject to them is consistent with other policies and procedures in the Firm, and that references themselves are consistent in terms of the quality and nature of the information provided within them, both across the Firm and between firms.

The Consultation runs until 20 March 2019. If you would like to discuss any aspect of the Consultation or the reference regime more generally, please contact John Drabble.