Both the role that references and whistleblowing can play in raising standards in the banking industry have been recognised as part of the new accountability regime, which is due to come into effect from March next year. On 6th October the PRA/ FCA (the “regulators”) issued a consultation paper concerning proposals relating to the provision of references for candidates applying for certain key roles under the new banking regime. On the same date they also issued their final rules in relation to whistleblowing in the financial services sector. This article considers both of these and what steps firms should be taking as a result.
The regulators have delayed making rules in this area in order to take account of the recommendations of the Fair and Effective Markets Review, which they have now done. One of the particular recommendations of the FEMR was that the regulators produce a mandatory form of reference for those moving in certain roles between regulated firms to weed out of the industry individuals with poor conduct records. To avoid potential exposure to claims in respect of references there has been a tendency for out-going employers to provide bland references containing minimal basic information which actually tells the potential new employer very little about the individual concerned.
The key proposals are: requiring certain firms to obtain references from former employers going back six years, modifying certain prescribed functions under the new regime to include compliance with regulatory reference rules, mandating the inclusion of concluded breaches of the relevant regulatory rules going back six years, requiring disclosures in a standard form reference (including the need to confirm where there is no relevant information to disclose) and requiring references given in the last six years to be updated where matters come to light which mean that the reference would have been drafted differently if it was being drafted now. One of the issues under consideration is whether these requirements should be extended to all regulated firms.
All regulated firms will have to make sure that they do not enter into arrangements which could limit their ability to disclose information, and must enhance relevant systems and controls relating to the retention of records and policies and procedures for both requesting and providing regulatory references.
The consultation closes on 7 December 2015 and the new rules will be in place from March 2016. Wherever the rules on regulatory references end up, in-house HR teams, who are likely to deal with such issues as business as usual matters, will need to revisit and, as necessary, revise their current procedures to ensure they can comply. Firms will also have to find a way of balancing the new requirements with their legal obligation to ensure that any reference is true, fair and accurate so as to avoid potential claims by the individual concerned or a third party that relies on it.
As part of it review into the banking scandal the Parliamentary Commission on Banking Standards identified whistleblowing as an issue by its very absence. In order to create an environment in which individuals feel able to raise issues without fear of reprisal the regulators have issued rules on whistleblowing which will apply to those firms with more than £250 million in assets as well as PRA designated investment firms and insurers subject to the Solvency II directive. These include requirements that firms create internal whistleblowing channels and inform staff of such arrangements, notify staff of the whistleblowing services of the regulators as well as the protections offered from dismissal and detriment under the Public Interest Disclosure Act 1998 and review and update wording in contracts of employment and settlement agreements so that they do not deter staff from whistleblowing.
Under the Senior Managers Regime and the Senior Insurance Managers Regime, firms will also be required to designate a ‘whistleblowers’ champion’ who will be allocated the prescribed responsibility of overseeing the firm’s whistleblowing policies and procedures. The champion will be required to oversee the implementation and effectiveness of those policies and procedures as well as to report to the board on how those arrangements are operating. The board will then determine whether further action is required in light of this report. The new rules apply from September 2016 to allow firms the time to review and/ or implement appropriate policies and procedures.
Whilst there is some cynicism as to how successful these steps will be, as well as some disappointment that they will not take effect for nearly another 12 months, the regulators are putting in place strong measures to encourage whistleblowers to raise issues.
In conclusion, there is clearly much for the HR and legal teams of organisations in the financial services sector to do over the next 12 months, and beyond. A review of existing processes, procedures and policies will be essential to ensure that any organisation caught by the new bank accountability regime, including the new reference and whistleblowing requirements, is able to comply with its obligations.