New rules on regulatory references for financial sector introduced

Implementation date: 7 March 2016

On 6 October 2015 the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) launched a consultation on their joint proposals to introduce new duties on banks and insurers to strengthen the rules in relation to employment references for certain senior posts in the financial sector. The consultation closed on 7 December 2015, and the first tranche of the new package of reforms will apply from the start of the new accountability regime on 7 March 2016, with the second tranche coming in as soon as possible.

The new rules require employers to request regulatory references going back six years from current or former employers of candidates applying for certain roles, regardless of whether or not the current or previous employer is a regulated entity. New specific disclosures must be included in references, which must be provided on a mandatory standard template. The new regime also requires providers of references to update references given in the previous six years where the former employer becomes aware of matters that would have caused it to draft the reference differently.

The duties apply in relation to candidates for senior management functions and significant harm functions under the Senior Managers Regime (SMR) and Certification Regime (CR); PRA senior insurance management functions, and FCA controlled functions under the senior insurance managers regime; as well as notified non-executive directors (NEDs) and credit union NEDs and key function holders within insurers.

Under the new regime, compliance with the new rules must be allocated to senior managers within banks, PRA investment firms and insurers. The matters to be covered in regulatory references are to be prescribed in detail in the PRA Rulebook and FCA Handbook.

Further proposals affecting all authorised firms, that is firms authorised by the FCA and/or PRA, include an express prohibition against companies entering into arrangements that conflict with the new regulatory reference obligations, and a requirement to implement adequate policies and procedures to ensure compliance with the rules relating to regulatory references, including an obligation to retain records of former employees' conduct and fitness and propriety for a minimum of six years.