On 28 September 2016 the Financial Conduct Authority (FCA) published final rules on regulatory references. The purpose of the rules is to support the FCA objectives of “consumer protection and market integrity by providing firms with effective tools to better assess individuals fitness and propriety and ensure individuals take greater responsibility for their own conduct.”
The obligation is on banks and insurers to request a reference from all previous employers over the last six years for individuals applying for a senior management function or senior insurance management function within the Senior Managers Regime or Senior Insurance Managers Regime, a significant harm function under the certification regime, Notified Non-Executive Directors and Key Function Holders. The rules will come into force in March 2017. The FCA feels that this will give firms sufficient time to ensure that their processes are up to speed particularly as some of the most challenging requirements will arise after the rules have been in force for some time.
The FCA have sought to address some of the concerns raised in the previous consultation issued in October 2015, relating to legal considerations about data protection, the practicalities of updating historic references, how to obtain regulatory references from certain overseas employers, the rationale of applying the references to intra-group moves and concerns regarding proportionality.
The final rules allow firms within a group not to request a reference from each other where the group has centralised records or alternative means of sharing relevant information. The rules also clarify that the obligation is on the firm to take reasonable steps to obtain a reference. Some respondents to the consultation had raised concerns over the difficulty of obtaining a reference from an overseas firm or even a non-financial services firm more generally. The rules also allow for some flexibility in timing, where providing a reference would require the recruiting firm or the existing employer to make a public announcement. If that is the case there is no time limit and references can be obtained at any point during the application process.
The rules include a standard template which regulated firms should use to provide a reference. This template has also been amended so that breaches of individual conduct are only required where the breach is subject to disciplinary action and further additional guidance has been given as to the level of detail required in the standard template. The rules also remove the requirement to provide details of an employee’s responsibilities in addition to their role.
Another important change to the final rules is in relation to the obligation to update a reference for six years since the date of the original reference. Concern was expressed that this could lead to data protection issues about sharing personal information with firms that may not have a legitimate reason for receiving such information. The amendment requires that a firm is only required to update the current employer to revise a reference already provided if new relevant information comes to light.
The FCA has also extended its guidance to assist firms in determining whether to give an employee the “right to reply “ to both the reference and the updating of any reference. Much of this guidance would in any event comply with the common law and employment law duties which apply to an employer in giving a reference
Firms will need to ensure that they are ready to implement the new regulatory reference rules on 7 March 2017.
