Regulatory references under the senior managers regime – final rules now published

The new rules

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 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 information to be provided – in a mandatory template form – being:

• 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).

References from employers not part of the regime are likely to be more general.

The requirement to provide this information only covers the six years before the date the reference is provided although there is no such time limit in relation to information concerning ‘serious’ misconduct which must be included irrespective of when it occurred.

In principle the rules also apply to intra-company or intra-group moves, but there will be no need to obtain a full regulatory reference if internal systems allow the new employing entity to access all information it needs to determine the individual’s fitness and propriety.

Updating references

There will be a continuing obligation on firms covered by the regime to update regulatory references given to the employee’s current employer (assuming it is still regulated) in the previous six year period where they become aware of matters that would cause them to draft the reference differently, if they were drafting it now. Firms must also update references, if necessary, in relation to any gap between providing the reference and the individual actually leaving employment. Updates must be provided, where appropriate, during the six years following the termination of employment.

Practical steps

While the new rules will not be in force for several months, HR teams should review their reference and record keeping arrangements to make sure they can comply with the new requirements and minimise the possibility of any regulatory sanctions. References should be checked carefully prior to job offers being finalised and business-as-usual systems relating to disciplinary action and record keeping will need to be aligned to support firms' adherence to the new requirements, both in terms of initially populating references as well as updating them as and when necessary. HR should give consideration to educating and training the wider workforce in relation to recruitment and the provision of references – including updated references – to departing and former staff.

Firms should avoid entering into arrangements that conflict with the regulatory reference rules, such as agreeing a different form of reference as part of a settlement agreement. Template agreements and associated policies should therefore be updated if appropriate.

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.

Extension of the regime

The senior managers and certification regime is due to be extended to all FSMA authorised firms from 2018. Once the regime is extended to all authorised firms the FCA and PRA will take a view as to whether the rules on references should also be extended to those firms. To view our quick reference guide to the regime, please click here or get in touch with a member of the CMS employment team.