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Financial Conduct Authority (FCA) Final Rules on Regulatory References

Following the changes earlier this year from the Financial Conduct Authority (FCA) which began 7th March 2016, financial services organizations/Firms have had to make several changes to the way in which they not only define regulated roles, but also the framework for regulated references to ensure the continued assessment of the ‘fitness and propriety’ of their employees.

The FCA and PRA have published new policy statements relating to regulatory references under the new regimes for banks and insurers which will come into effect 7th March 2017.

At a glance the new rules require relevant firms to:

  • Request and provide references that include information on the candidate’s conduct, fitness and proprietary relevant to their function
  • Seek and provide references going back six years
  • Comply with the ‘Conduct Rules’
  • Implement all changes by the 7th March 2017

Who does this apply to?
The rules will apply to Banks and Insurers, but will potentially be extended to other financial services in future.

What do the FCA rules state on regulatory references?
The FCA amended rules state that firms have an obligation to provide a reference on receipt of a request and that references must include all relevant information.
The FCA and PRA have provided a standard reference template for requesting references, which had been discussed during the consultation period in 2015.
Along with the mandatory information prescribed by the FCA and PRA the policy statement relating to all relevant information makes it clear that Firms will be expected to apply judgement on a case by case basis and will be expected to disclose all relevant information in a six year period. Firms will need to take into account existing Handbook guidance and whether complaints or disciplinary procedures have been upheld in order to establish whether the information they provide is relevant or what they reasonably consider to be relevant.

The FCA and PRA have also made it clear that there is no time limit for serious misconduct and that these should always be disclosed when responding to a reference even if they occurred outside of the six year reference period.

Who needs a reference?
Anyone going into a regulated function. This includes contingent and contractors as well as full time employees. It may also apply to intra-group moves if the Firm does not have a centralised way to share relevant information within a group.

Additional changes
The FCA and PRA have also stated that financial services organizations/Firms will need to update the current employer, if that employer is a FSMA Firm, within six years of the employee leaving if it was discovered that the candidate had been involved in misconduct that would have materially changed the original reference and is relevant.

This particular change has an impact on the record keeping requirements of Firms. Firms are obliged to keep records of all disciplinary findings for six years unless serious for which there is no time limit.

To read the Policy Statement in more detail and to see a copy of the Standard Reference Template please review the following policy document, Strengthening Accountability in Banking and Insurance: Regulatory References Final Rules

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