New regime for regulatory references – is your business caught?

United Kingdom

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

A new regime for provision of regulatory references comes into force today, which primarily affects regulated businesses caught by the Senior Managers' Regime and the Senior Managers Insurance Regime (that is, banks, building societies, credit unions and PRA-designated investment firms, branches of foreign banks as well as large insurance and reinsurance firms).

These organisations, referred to as "full scope" firms, will be subject to a number of prescriptive requirements on the provision of references to the new employers of departed employees when those inpiduals take up certain regulated positions, as well as ensuring that employees recruited by them have appropriate references. The purpose of the new regime is to take the onus away from the regulators and put it back onto employers to certify the fitness and propriety of staff carrying out regulated roles.

The new requirements specify, in particular, that:

  • references must go back six years and, where there has been serious misconduct, there is no time limit;
  • the referee organisation must provide as complete a picture as possible of the inpidual's conduct record, subject always to its existing legal obligation to provide references that are accurate and not misleading;
  • the requirement to obtain a regulatory reference applies irrespective of whether the inpidual was previously employed in the financial services sector and a reference must be provided irrespective of the inpidual's reason for leaving;
  • previous references may also need to be updated by full scope firms if new information comes to the referees' attention;
  • full scope firms must use a mandatory template to provide the reference, usually within six weeks of the request;
  • firms may not enter into any arrangements with employees that conflict with the obligation to give a regulatory reference, including in settlement agreements and COT3 settlements via ACAS; and
  • all firms must establish, implement and maintain policies and procedures that are adequate to ensure compliance with the new rules.

The new rules are fairly complex and so it may be that HR and Compliance teams will take some time to get used to this regime.

Are you caught by the new regime?

It is notable that, even if your business is not a full scope regulatory firm, you may be still caught by some rules under the new regime. This will particularly apply where a full scope firm submits a reference request to an FCA regulated business. Here, the referee organisation is not required to use the mandatory template or update or revise references if new information comes to light, but will be subject to various other obligations regarding the content and scope of the reference.

It is expected that the full suite of obligations on full scope firms will be extended to all regulated businesses. There is no fixed timetable for this as yet, but we will provide further relevant updates in due course.

Practical advice

  • If you work in HR or Compliance in a full scope regulatory firm, make sure that appropriate policies are put in place to deal with the new regime, so that HR and managers alike understand the new obligations.
  • If your business is not a "full scope" firm but is nevertheless regulated, consider whether it would be appropriate to implement a policy to assist in providing a regulatory reference if one is requested by a full scope firm. In particular, while your business is not currently required to use the mandatory template, you may wish to develop an internal standard template reference to ensure consistency of approach and compliance with the new rules.