Regulatory References – what do you need to know?

With effect from 9 December 2019, the requirements to provide regulatory references is expanding.  So, what do you need to know?

Regulatory references have been part of the legal landscape for banks and insurers since March 2017, but as of 9 December 2019 this comprehensive regulatory requirement will apply to all firms regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), under the Senior Manager and Certification Regime (SMCR).

It is likely that, even if your firm is not yet part of the regulatory references regime, you will have come across a request for a regulatory reference for a former employee who has gone to work for a bank or an insurer.  The 2008 financial crisis may be a distant memory for many, but the scars on the reputation of the financial services industry remain, and firms within regulated industries will be all too aware of the FCA and PRA’s robust approach to enforcing the rules that govern the industry.

Some of the headlines, and key points to watch out for, are:

  • The regulatory references regime applies regardless of whether the staff move is internal, a promotion, a demotion, or to an entirely new firm.
  • It applies to employees, workers, self-employed contractors and volunteers. It is important to consider the full range of your staff that may be affected and may either have to receive or be given a regulatory reference in this way.
  • The reference will need to go back six years, meaning you will likely need input from your employee to get contact details of previous employers, even if they were overseas or not in the financial services sector.
  • If your business is regulated, it is vital that you document all reference requests to be able to evidence your compliance to your regulator. Note that if the former employer or engager to whom you are requesting a reference from is overseas or outside of financial services, you are obliged to still request the reference, but they will not be obliged to respond.
  • The application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) has not been tested yet. It could mean that you are required to obtain references from both transferor and transferee.
  • At the very latest, these references must be requested one month before the regulator will be determining whether to approve the individual’s application (this is normally 3 months from the date of application). It must also be done before any public announcement is made. This is critical if your senior executive team are regulated and you intend to announce their appointment, and means they cannot undertake their regulatory function until the reference is in place.
  • From an HR perspective, it is sensible to consider implementing processes and procedures to ensure your staff know what is required and expected of them as regulated individuals, but also in respect of obtaining references.
  • If you are required to provide a reference, this must be done as soon as practicable and, if you are regulated by the SMCR, you must use a template that is identical (or identical except for minor formatting changes) to the one supplied by the FCA at SYSC 22 Annex 1 of the FCA Handbook.

It is important to bear the FCA’s interests in mind when responding to a request for a reference. You are asked whether the individual is “fit and proper”, and the FCA has provided guidance on what this means at FIT of the FCA Handbook.  However, your common law duties in respect of references still apply and an individual must be given the opportunity to comment on any allegations made (though not on the reference itself). There is no obligation to disclose any disciplinary or other matters which you have not been able to verify.

It is impossible to cover all of the considerations you should have when responding to or providing a reference request (not least because it would make quite dry reading!), but at Herrington Carmichael we would be happy to assist you with complying with your regulatory duties.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

Alistair McArthur
Partner, Head of Employment
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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