The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) recently published new policy statements (PS16/22 and PS27/16 respectively) in order to strengthen accountability under the new senior insurance manager’s regime, introduced in March 2016 for Solvency II firms and large non-Solvency II Directive firms.
The new rules relate to regulatory references, which are essential in allowing firms to share relevant information on individuals, to support firms’ assessment of potential new recruits as fit and proper. The rules require firms to provide employment references containing all relevant information of which they are aware, as soon as reasonably practicable when this has been requested by other regulated firms. In addition, where they are considering hiring a candidate into a function subject to the regulatory reference rules, firms are required to take reasonable steps to obtain appropriate references covering at least the candidate’s past six years of service, including from any organisations at which that person had served as, or was currently, a non-executive director.
The FCA’s rules state that the obligation to provide a reference relates to candidates who will perform a pre-approved role, and candidates who hold certified roles and certain PRA-approved roles. Firms are still subject to the general obligation on employers to ensure that the references are fair, clear and accurate but are required to provide a factual description of breaches, including details of all serious breaches. For this purpose firms should be guided by the FCA SYSC Handbook 22.5.10G and SYSC 22.5.11G and the PRA’s PS27/16, which gives examples of serious breaches. The regulators consider conduct involving breaches of the conduct rules and supervisory requirements, or conduct which results in enforcement action against the firm or involves dishonesty, to be of sufficient gravity. There is a standard template that firms can use in the Annex to the FCA’s PS16/22, which lists certain mandatory information that must be disclosed.
Annex 3 of the FCA’s PS16/22 contains a useful summary of the FCA and PRA’s regulatory reference requirements. Firms are required to obtain references before submitting the application for regulatory approval but the FCA and the PRA note that this may not be possible in certain circumstances. Relevant firms will need to ensure that they are ready to implement the new regulatory reference rules from 7 March 2017.