Regulatory References and SM&CR

A key consideration in the recruitment process is to be reasonably confident that the person you are appointing is the right candidate for the job. This means that they will be competent to meet the demands of the role but will also be someone of good repute, adhering to appropriate standards of behaviour and conduct. Even if someone looks like the ideal candidate on paper or comes across well in interview, all might not be what it seems, and appropriate checks should be made to help confirm the person’s suitability.

A time-tested way of evidencing this has been through the requesting of references. These are testimonials from a candidate’s current or previous employers that advise as to the candidate’s experience, competence, ability, reliability and overall appropriateness for a job.

Under the Senior Managers and Certification Regime (SM&CR), which will apply to FCA solo-regulated firms from December 2019, ‘regulatory references’ will be required for new appointments to Senior Manager positions and for new recruits who will hold a Certification Function. It also applies to the appointment of non-executive directors.

These rules have been introduced to improve the standard of conduct within the financial services sector and to help prevent individuals with unsatisfactory conduct records moving from one firm to another.

The recruiting firm must take reasonable steps to obtain appropriate references from the candidate’s current employer and each of the candidate’s past employers, covering the previous six years. Authorised firms are required to provide the reference to the applicant firm as soon as ‘reasonably practicable’.

A regulatory reference follows a prescribed template and should include details of:

  • any disciplinary action due to alleged breaches of Conduct Rules;
  • any findings that the candidate was not considered fit and proper;
  • any cases of serious misconduct (even outside the six-year period); and
  • any other relevant information

When making appointments and considering the person’s fitness and propriety, firms need to use their judgement based on the content of the reference(s).

Firms should also reasonably ensure that robust record-keeping procedures are maintained. Information on individuals should be kept up-to-date, with details of any ‘new, significant information’ added where necessary.

Employers are under a legal duty of care to provide references that are truthful, accurate, fair, and not misleading. They should be thorough, transparent and factual. Any assertions that could lead to a job offer being withdrawn must be supportable with clear evidence.

Whereas previously some employers and employees may have made non-disclosure agreements concerning an individual’s departure from an organisation, SM&CR prevents any such agreement that would reduce the ability of the employer to make the relevant disclosures required within a regulatory reference.

Regulatory references are important documents. Firms should show care and caution when completing them. Negligently providing incorrect information about an individual could bring a risk of litigation, whereas not highlighting areas of concern regarding the individual’s fitness and propriety could be considered a breach of the firm’s duty to exercise reasonable care and skill. If an improper person ‘slipped through the net’, it could result in regulatory sanctions and damage to a firm’s reputation and the reputation of the sector more generally.

About the author

Kate is the chairman and co-founder of RWA and has worked for the company for nearly 20 years. She is a fan of developing practical, workable, business-led policies and procedures. Kate has specialist training experience within the financial services sector, including major general insurers, and the Lloyd’s underwriting and broking market. She has researched and developed numerous training programmes, both for commercial and in-house use. She has extensive experience of developing in-house and public training programmes for business skills, including Diversity, Employment Law, Management and Leadership, Motivation, Coaching and Feedback, Communication Skills and EQ.

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