Job reference in the financial sector and for approved persons

finance

Job reference and the approved persons regime

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) require an employer to provide a job reference as soon as reasonably practicable for an approved person who performs a controlled function, and to provide all the necessary relevant information. An approved person is an employee who the FCA approves to carry out one or more activities for an authorised firm. These activities are called “controlled functions”. If the old employer does not send a reference in a timely manner, the FCA or PRA can take enforcement action against that employer. A firm providing a reference owes a duty of care to the former employee and the prospective employer. Details of what is required are laid out in FCA SUP 10A.15.1 – References and Accurate Information and PRA SUP 10B.13.1.- PRA Approved persons.
In providing the reference, the previous employer should give information about;

  • any outstanding liabilities of the individual for commission payments;
  • any relevant outstanding or upheld complaint against the individual;
  • anything relevant to section 5 of the relevant Form A: Application to perform controlled functions under the Approved Persons Regime (Approved persons – Applying for approval);
  • the requirements under the fit and proper test for approved persons (honesty, integrity and reputation, competence and capability, and financial soundness)
  • the persistency of any life policies sold by the individual if the firm is an insurer with permission to effect and carry out life policies or has permission to establish, operate or wind up a stakeholder pension scheme.

References where the role is not a controlled function

Normal employment law principles apply when a regulated employer receives a reference request for a former employee who was an approved person but would not be performing a controlled function in their new role. The employer does not have to provide the full details required by FCA SUP 10A.15.1 – References and Accurate Information and PRA SUP 10B.13.1.- PRA Approved persons

 

Settlement agreements

A firm’s obligations to supply information to either the FCA or PRA under Form C: Notice of ceasing to perform controlled functions or to another firm (see References for approved persons) will apply notwithstanding any agreement such as a COT3 or settlement agreement. Firms are adviced not to enter into any settlement agreements that could conflict with their obligations set out in the FCA Handbook. Failing to disclose relevant information to the FCA may be a criminal offence under S398 Financial Services and Markets Act 2000. Because of this some employers will refuse to give a standard reference within a settlement agreement, or including a clause in the agreement which limits a standard reference to a non-regulated role.

Companies also have an obligation to provide the FCA and PRA with information as to the fitness and propriety of approved persons. This means that companies must tell the FCA and PRA about the circumstances under which the employment terminated.

Senior Managers Regime and Certification Regime 

The FCA and PRA published a joint consultation paper called Strengthening accountability in banking: a new regulatory framework for individuals which set out their proposals for creating a new regulatory framework.  As a result the Approved Persons Regime will be replaced by the Senior Managers Regime (SMR) and the Certification Regime (CR) on 7th March 2016.  The new rules require companies to take reasonable steps to obtain references for individuals, including non-executive directors who are appointed to either a senior management function or certification function. These references will form part of the assessment of a candidates fitness and propriety as well as the person’s previous six years of employment.

The reference should include any facts that led a previous employer to conclude that a candidate breached a conduct rule, and a description of the basis and outcome of the disciplinary action taken in relation to any such breach. The PRA and FCA have confirmed that firms will not be required to arrange or conduct criminal records checks for staff other than those that are subject to the SMR. The rules do not require criminal records checks to be carried out for individuals applying for roles under the CR.

On 6 October 2015, the FCA and PRA published another joint consultation paper – Strengthening accountability in banking and insurance: Regulatory References which sets out additional proposals for references for candidates applying for SMFs under the SMR and certain other roles. The proposals contain the specific disclosures that must be included in such references.

The proposals for relevant authorised persons and insurers include the following;

  • Relevant authorised persons will be required to request regulatory references from former employers of candidates applying for SMFs, and certification functions in relevant authorised persons, covering the previous six years of employment.
  • The PRA proposes a similar requirement for relevant authorised persons, in respect of candidates applying for certain other roles, including notified NEDs.
  • Certain prescribed responsibilities will be modified for senior managers in relevant authorised persons, to include compliance with the regulatory reference rules.
  • It will be mandatory to include details of any concluded breaches of the conduct requirements of FCA Conduct Rules (COCON), PRA Conduct Rules or Conduct Standards, and Statements of Principle and Code of Practice for Approved Persons (APER) covering the previous six years.
  • Relevant authorised persons will be required to disclose any relevant information, in a standard format, and where there is no relevant information, this must be expressly stated.
  • Relevant authorised persons will be required to update any references they have given in the past six years, where they become aware of any matters that would have caused them to draft the reference differently had they been in receipt of that information at the time.

The proposals for all authorised firms can be summarised as:

  • clarifying that a firm must not enter into any arrangements or agreements that limit its ability to disclose relevant information; and
  • improving systems and control requirements relating to the retention of records and the procedures for both requesting, and providing, regulatory references.

 

Best of the web

FCA Handbook (SUP, APERFIT)
PRA Handbook (SUP, APERFIT)

FCA – Approved persons

Approved persons for consumer credit firms

Fitness and propriety

Improving individual accountability

PRA – Strengthening accountability

Applying for approval

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