The new regulatory reference regime came into force on 7 March 2017.

The regime is part of the new rules for personal accountability in the financial services sector under the Senior Managers and Certification Regime (SMCR) and the Senior Insurance Managers Regime (SIMR). Whilst only SMCR and SIMR firms are required to request regulatory references, all employers may need to grapple with the new rules if they receive such a request.

The rules aim to ensure identification and prevention of ‘bad apples’ – individuals who move jobs to avoid their conduct history catching up with them.

Regulatory references must disclose all information which would be relevant to the assessment of whether an individual is fit and proper. As such they require a more detailed and thoughtful approach to references than was previously required under the approved persons regime. Avoidance by omission is no longer an option.

There is a risk that the new regulatory reference framework may give rise to more litigation, either by former employees whose ability to work in the financial services industry depends on receiving a satisfactory reference or by new employers who rely on the references given.

Particularly careful consideration to obligations under the regime should be given:

  • On termination of employment/ negotiation of settlement agreements

  • During the course of regulatory investigations

Firms may find it helpful to adopt a policy on regulatory references, to ensure that the key stakeholders (namely HR, Compliance and IT) are coordinating appropriately and approaching the new regime in a consistent manner. Such a policy might be particularly useful in the case of later regulatory investigation or employment litigation.