10 October 2016

New rules on references in the regulated financial services sector

This article was written by Tamsin Rickard, Professional Support Lawyer

On 28 September 2016, the FCA and the PRA published their feedback and final rules on the provision and requesting of references in relation to candidates for certain roles in authorised financial services firms.

The new rules impact most significantly upon firms within scope of the Senior Managers and Certification Regime (the “SM&CR”) and the Senior Insurance Managers Regime (the “SIMR”): broadly, banks, building societies, credit unions, PRA-authorised investment firms and insurers (referred to as “full scope regulatory reference firms”). However, a number of the proposals affect all authorised firms.


The current rules on regulatory references, which have existed for some time, require an authorised firm from which a reference is requested by another authorised firm looking to appoint an individual to an approved or certified role to provide “all relevant information of which it is aware”. The regulators originally consulted on more prescriptive rules on regulatory references during 2014 as part of their proposals for the new accountability frameworks for individuals under the SM&CR and the SIMR. However, they delayed publishing their final rules in light of recommendations made in the Fair and Effective Markets Review Final Report, which was published in June 2015.

The Report recommended that there should be a mandatory form for regulatory references, to help firms prevent the ‘recycling’ of individuals with poor conduct records, and that firms should be prohibited from entering into agreements that could conflict with their disclosure obligations. The regulators issued a joint consultation paper on regulatory references in October 2015, reflecting the recommendations made in the Report. The proposals drew out a number of concerns and so the regulators did not feel able to publish final rules in time for commencement of the SM&CR and SIMR on 7 March 2016.

Interim rules were put in place pending further consideration of the final rules, largely replicating the pre-existing position. The final rules have now been published, and will come into effect from 7 March 2017.

Proposals in relation to full scope regulatory reference firms

The key new rules for firms within scope of the SM&CR and SIMR are as follows:

  • hiring firms must request regulatory references in relation to candidates going back six years, and must take reasonable steps to obtain a reference by a specified time in the onboarding process;

  • firms must retain records of information about employees’ conduct, and their fitness and propriety, for a period of at least six years following the end of the individual’s employment with the firm (or six years after a record is made, if made after an individual has left the firm), to enable them to meet regulatory reference requests;

  • references must be provided using a standard template, which will require firms to confirm various pieces of mandatory information, disclose all other “relevant information" going back a period of six years (but no time limit applies for disclosures relating to serious misconduct, such as a serious breach of individual conduct requirements, or conduct involving dishonesty) or make a declaration that there is no relevant information to disclose;

  • references must include details of breaches by the candidate of the Conduct Rules and, in relation to conduct prior to the implementation of the SM&CR and SIMR, the Statements of Principle for Approved Persons.  However, in a change to the proposed rules, this is required only where such breaches have resulted in disciplinary action; and

  • references previously given will need to be updated if the referee firm subsequently becomes aware of a matter which would be significant in relation to the assessment of the individual’s fitness and propriety (for example, if a breach of the Conduct Rules was later established).   The original draft rules required this to be provided to all new employers; the final rules require updating only to the individual's current employer, where they are an authorised firm. The updating requirement will apply for a period of six years from when the individual left the firm.

Proposals in relation to all firms

The FCA will introduce a new Chapter 22 on regulatory references into its Senior Management Arrangements, Systems and Controls sourcebook (“SYSC”), which will be relevant to all firms. Some of the rules are expressed as applying to all firms, whilst the more onerous requirements apply only to full-scope regulatory reference firms.

As per the original proposals, the key rules in relation to all authorised firms will prohibit them from entering into arrangements that their ability to disclose relevant information when giving references, and introduce enhanced requirements on policies and procedures for both requesting and providing regulatory references.

The key provisions of the new rules applying to all firms are as follows:

  • firms must disclose “all relevant information” when giving a reference. Although this replicates the current rules, there is new detailed FCA guidance indicating the sorts of information it expects to be included, making it harder for firms to justify giving only sparse references;

  • firms must not enter into arrangements that conflict with the regulatory reference rules, for example agreeing a reference that does not comply with the rules; and 

  • firms must have appropriate policies and procedures in place in order to meet the regulatory reference requirements.

What should employers do now?

With the rules coming into force next March, affected firms must take action now to ensure they are ready to comply, including:

  • reviewing internal policies and systems: some firms will already have suitable processes in place, including record-keeping policies, but need to update them to ensure they are able to comply with the new rules.  HR and compliance teams must ensure that records are kept throughout the employment life cycle in such a way as to facilitate the drafting of references; for example, where an event is likely to be “relevant information” for the purposes of a reference, ensuring the appropriate details are fully and contemporaneously recorded;

  • reviewing settlement agreement wording; settlement agreements will need to be clear as to the right to update and amend references in light of new information that comes to light after the agreement has been signed; 

  • for firms other than full scope regulatory reference firms, preparing for further change: the regulators have indicated that they will consider extending the full requirements (including mandatory disclosures and a prescribed template) to all authorised firms, as part of the extension of the SM&CR. Consultation for the extension is expected to begin in 2017, with the extension taking effect during 2018.   

A Guide to Investing in Australian Real Estate

Investing Down Under offers a quick overview of the legal, taxation, FIRB and structuring issues you may encounter when investing in Australian real estate.

A Guide to Doing Business in China

We explore the key issues being considered by clients looking to unlock investment opportunities in the People’s Republic of China.

Doing Business in China
Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    Like many businesses, in light of COVID-19, many individuals who are self-employed are facing the significant challenges of business continuity and cash flow

    30 March 2020

    Recent caselaw sheds light on how to investigate allegations which pit one person's word against another's.

    13 December 2016

    EAT confirms that employers have positive duty to arrange for employees' rest breaks.

    12 December 2016

    The Autumn Statement 2016: key points for employers.

    12 December 2016

    You may also be interested in...

    Legal services for your business

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.