Criminal Records and SM&CR

The Senior Managers and Certification Regime (SM&CR) aims to improve conduct within the financial services sector at all levels. As part of this, it introduces more stringent requirements in respect of criminal record checks.

Under SM&CR, criminal records checks are required for new applicants for Senior Management Functions or Non-Executive Directorships. Whilst the checks are not mandatory for staff caught by the Certification Regime, it may be good practice to do so.

There are exemptions. Sole traders are not required to seek regulatory references or criminal records checks for themselves, regardless of whether they hold a SMF. Non-approved board members at Limited Scope SM&CR firms are also exempt from fitness and propriety requirements.

For existing approvals, firms do not need these checks unless there is a ‘substantive change’ in the individual’s role. However, firms must make sure that these individuals are, and continue to be, ‘fit and proper’ for their roles.

Annual fitness and propriety assessments must consider a person’s:

• honesty, integrity and reputation;
• competence and capability; and
• financial soundness.

A person’s criminal record must therefore be considered when assessing their ‘honesty, integrity and reputation’. However, the existence of a criminal record does not necessarily mean that the person cannot hold a Senior Management or Certification function.

Specifically, under FIT2.1 (Honesty, Integrity and Reputation):

“If any staff being assessed under FIT has a conviction for a criminal offence, the firm should consider the seriousness of and circumstances surrounding the offence, the explanation offered by that person, the relevance of the offence to the proposed role, the passage of time since the offence was committed and evidence of the individual’s rehabilitation.” [FIT 2.1.1A.G].

For instance, a minor offence, carried out several years ago, with no relevance to the person’s job, is unlikely to bar them from the position, whereas a recent, serious conviction for financial misconduct is likely to be of greater concern.

If a firm registers with the Disclosure and Barring Service (DBS), it becomes a ‘Registered Body’ and is subject to the Code of Practice for the Disclosure and Barring Service (DBS) - Registered Persons. This places additional requirements on the firm, including having:

"a written policy on the suitability of ex-offenders for employment in relevant positions. This should be available upon request to potential applicants and, in the case of those carrying out an umbrella function, should be made available to their clients."

Smaller brokerages, however, may choose to utilise an intermediary ‘umbrella’ service to carry out the DBS checks on their behalf. In such instances, the umbrella organisation will be the Registered Body and not the firm.

In any case, applicants for a DBS check should be informed of the Code of Practice and provided with a copy.

The attempt to improve conduct within the financial services sector is laudable and the addition of compulsory criminal records checks is an important part of this. However, firms should remember that the new regime does not impose a blanket ban on ex-offenders working in financial services and rehabilitation is possible, depending on the circumstances.  Exercising good judgement and proportionality is key.