As part of the series of reforms introduced by the FCA and PRA which are aimed at improving accountability in banks, building societies, PRA investment firms and insurers, the FCA and PRA have announced a consultation on their proposals to introduce a mandatory form of employment reference (a regulatory reference). The intention of the reforms is to prevent the re-employment of individuals with poor conduct records. Responses to the consultation are due by 7 December 2015.
The reforms will affect candidates applying for roles in a wide range of financial services and insurance firms; including senior management functions under the Senior Managers Regime; significant harm functions under the Certification Regime; PRA senior insurance management functions under the Senior Insurance Managers Regime; FCA insurance controlled functions; notified non-executive director roles within a Relevant Authorised Person, and key function holders within an insurer.
Under the proposals, which will apply to all authorised firms, it will be a requirement that firms request regulatory references going back six years from former employers of candidates applying for Senior Management Functions, significant harm functions and Senior Insurance Management Functions, or other controlled functions within insurers. References will have to be sought even where the former employer was not an authorised entity and where the applicant is being recruited from within the firm or a group company. The reference must disclose any breach of the FCA and/or PRA Conduct Rules, Conduct Standards and Statements of Principle and Code of Practice for Approved Persons within the six year period. To the extent that the former firm, having given a reference, becomes aware of matters which would have led them to draft a reference differently, it will be required to update references given in the past six years. Authorised firms will be required not to enter into arrangements that conflict with the regulatory reference rules.
If the proposals come into effect, there will be an increased responsibility on firms to undertake detailed due diligence before providing a reference. Firms will also have to monitor whether references need to be updated in light of information which later comes to light. This represents a significant departure from typical reference procedures which exist currently.