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Farrer & Co | Regulatory References: FCA publish final rules

The FCA has published its final rules in relation to the provision of regulatory references (see here).

The new regime comes into force from 7 March 2017 and applies to banks (i.e. deposit takers and investment firms) and some insurers (for other regulated firms the current rules continue to apply).

The key aspects of the new regime are as follows:

(a) it applies to applicants being recruited into Senior Manager, Certified and FCA controlled functions and into notified NED roles;

(b) relevant firms are required to take "reasonable steps" to obtain references covering the last 6 years of a relevant applicant's employment (whether or not they were employed in a regulated role during that period and whether or not they were employed overseas for any of that period);

(c) a reference is not, however, required for intra-group transfers, provided that the group has "centralised records or alternative means of sharing information as part of the fit and proper assessment of candidates";

(d) regulated firms providing a reference are required to do so as soon as "reasonably practicable";

(e) references should ideally be obtained before any application for approval is submitted or, failing that, at least one month before the application process ends (save in special circumstances where a reference request will result in the existing employer having to issue a public announcement, in which case references can be obtained at any time during the application process);

(f) relevant firms falling within the new regime have to provide the reference for a relevant individual using the new prescribed form;

(g) relevant firms need only disclose conduct breaches where they resulted in disciplinary action being taken (i.e. a formal written warning, a suspension (albeit not a suspension "pending an internal investigation"), a dismissal or a sanction involving a reduction in remuneration). Where a disclosure does have to be made, the reference should set out the facts surrounding the relevant breach, including the relevant dates, and what the outcome was;

(h) relevant firms also have to disclose any findings that an individual was not fit and proper;

(i) subject to (j) below, the reference should also contain all other information relevant to an individual's fitness and propriety. However, the rules state that relevant firms are not required to disclose "information that has not been properly verified" and chapter 22 of the SYSC states that "this chapter does not necessarily require a firm to include in a reference the fact that an ex-employee left while disciplinary proceedings were pending or had started. Including such information is likely to imply that there is cause for concern about the ex-employee but the firm may not have established that the ex-employee was actually responsible for misconduct. However, a firm may include such information in a reference if it wishes to";

(j) in terms of time periods relevant to the requirement at (i) immediately above, the provider of the reference should include relevant acts/omissions occurring within the 6 years before the request for the reference or between the date of the request and the provision of the reference or (in the case of serious misconduct) occurring at any time;

(k) the obligations under the regime apply, notwithstanding the wording in any settlement agreement or COT3; and

(l) relevant firms are required to update references (but only to the current employer of the individual) during the notice period and for 6 years after the individual's employment terminated.

In addition to the specific requirements under the new regime, the general obligation to exercise due skill and care when drafting a reference also continues to apply and firms will need to tread carefully when completing the new template, once the new rules apply. This is particularly the case in relation to the wider question regarding any information concerning an individual's fitness and propriety.

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