Regulatory references: are you ready for 7 March 2017?
Financial services firms still have a few weeks to get ready for the new regulatory reference regime that comes into force on 7 March 2017…. Read more
Financial services firms still have a few weeks to get ready for the new regulatory reference regime that comes into force on 7 March 2017. These rules have been introduced as part of the SMCR/SIMR accountability regimes and place obligations on all financial services firms, not just those currently caught by SMCR and SIMR. At our recent client roundtable event, just over half of those surveyed said that they were starting to review their internal policies but for others, there is still work to be done!
What are the new rules?
The reference rules replace the transitional arrangements which have been in place since March 2016 and will require all FCA regulated firms recruiting for certain roles, including SMFs, SIMFs, FCA-controlled functions, SHF, PRA-controlled functions, KFH and Notified NEDs to request regulatory references going back over the last six years of the applicant’s employment. Firms in receipt of such a request are required to provide a reference, covering the last six years and beyond in the event that the individual had committed serious misconduct at any point during their employment. References should be provided as soon as reasonably practicable and within 6 weeks of the request. Banks and insurance firms are required to respond to reference requests by using the FCA/PRA mandatory template but must also include all “relevant information” regarding the individual’s fit and proper status. Relevant information includes such information as the regulator would typically take into account, such as matters relating to conduct; honesty, integrity and reputation; competence and capability; and financial soundness. Other FS firms are not obliged to use the template when responding, but must still give all relevant information.
The new rules also contain an obligation to provide an updated reference where information comes to light after a reference has been given, where such information would have changed the contents of the original reference had it been known to the reference giver at the time it gave the original reference. The obligation extends to updating the current employer only and the firm updating the reference is required to take reasonable efforts to find out whether the firm(s) to which it has provided references in the past still employ the individual.
What must firms do now?
Under the new rules, firms are required to have appropriate policies and systems in place to enable them to meet their obligations, and for those firms in the SMCR and SIMR regimes, responsibility for the reference process will lie with a SMF or SIMF. This means that firms should now be:
- Designing a reference policy and identifying the areas of the business responsible for managing and following it
- Ensuring that data regarding performance and conduct is kept so as to allow references to be provided
- Devising a system to allow for updating of references including a right of reply to the individual affected by the updated reference
- Considering the impact of the new rules on existing systems and policies, such as recruitment, disciplinary procedures and remuneration/reward processes
- Reviewing settlement agreements to ensure that the firm’s regulatory reference obligations are not fettered or limited
- Training managers to ensure the new rules are taken into account on employee hires and exits
For advice on how best to meet your obligations under the new reference regime, please get in touch.