Financial Soundness For Non-Senior Managers

Earlier this year, an Employment Appeal Tribunal hearing upheld the decision that a financial consultant was fairly dismissed after failing to disclose bankruptcy. The claimant was employed by an estate agency that also provided certain financial services, such as mortgage and insurance products, as an Appointed Representative for an FCA authorised firm.

It was found that there were no terms in the claimant’s contract, nor any policy or regulatory requirement (applying to him), that specifically required disclosure of bankruptcy. However, the tribunal established that the employer believed, given the claimant’s position within a regulated industry, he knew, or could be expected to know, “it would regard his bankruptcy as a serious matter and would have expected him to disclose it”, which he had deliberately not done. The judge found that the employer was justified in their view that this misconduct warranted dismissal and that the disciplinary and appeals process had been carried out fairly.

The upholding of the dismissal, despite no specific breach of contractual obligations or regulatory requirements, highlights that it may be reasonable to hold all of those working in the financial services sector to a higher standard, particularly with the FCA’s increasing focus on conduct outside of the workplace. It also emphasises the importance of assessing and ensuring the ongoing fitness and propriety of senior managers.

In the FCA's view, the most important considerations will be the person’s:

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

Additionally, this case acts as a valuable reminder of the ongoing responsibility of principle firms to oversee their ARs. Principles should:

• Ensure your ARs act within the scope of their appointment.
• Ensure safeguards are in place where you delegate functions or tasks to an AR. This includes considering whether there is a conflict of interest and implementing enhanced monitoring.
• Assess senior managers at your AR(s) for competence and capability.

A full review of each AR must be conducted and documented at least every 12 months, which looks at, amongst other elements, the fitness, propriety, and competence of senior management at ARs; the AR’s financial position; and the adequacy of your controls and resources to oversee your AR(s). Firms must ensure that any significant issues which arise from the AR reviews are escalated for consideration by the principal’s governing body.

However, regardless of how diligently reviews and checks are conducted, as in the above case, employees may fall outside of what is mandatory. Therefore, an employers’ position will no doubt be stronger if expected conduct is specifically outlined in contracts and handbooks across a wider range of employees. Importantly, the general mention of adhering to FCA handbook rules might not be enough. To remove the possibility of dispute, firms may want to include direct reference to certain obligations they wish to establish, such as the disclosure of significant financial changes.

If you require any guidance on your regulatory requirements, please contact your RWA Business Manager OR get in touch via email at helpdesk@rwagroup.co.uk, or call 01604 709509.

Alternatively, if you would like assistance with amending contract or handbook wording or any other HR-related issue, please contact the team at IHRS by visiting Get in touch | Insurance HR Solutions.