On September 28, 2016, the PRA and the FCA published revised
rules on regulatory references for banking and insurance firms
subject to the Senior Manager and Certification Regime and the
Senior Insurance Manager Regime, respectively. Regulatory
references are employment references passed between firms when an
individual moves roles. The PRA and FCA consulted late last year on
proposals to implement the recommendation of the Fair and Effective
Markets Review that a mandatory form of regulatory references be
introduced. Feedback to the proposed rules raised concerns about
the legal consequences of the requirements and pointed to data
protection and confidentiality issues.
The regulators therefore published interim regulatory reference
rules in February 2016, which came into effect on March 7, 2016, in
line with the commencement of the SM&CR and SIMR. These interim
rules apply to banks, building societies, PRA-designated investment
firms and incoming third-country branches of those firms, as well
as Solvency II insurance firms. The interim rules require one
regulated firm to provide references to another regulated firm
which contain all relevant information of which the first firm is
aware as soon as reasonably practicable following a request. When
hiring a candidate for a function within the regulatory reference
rules (senior management functions, certified functions and
notified non-executive directors) firms must also take reasonable
steps to obtain appropriate references covering a candidate's
past five years of service.
The PRA and FCA have made some changes to their proposed rules,
revised the regulatory reference template and clarified firms'
obligations. Changes include an extension of the period for
requesting references to the prior six years of employment (from
five) and not requiring firms to obtain full regulatory references
when appointing an individual from a firm which is part of its own
group, provided that the group's internal policies and
procedures allow the firm to obtain all the information it would
need to assess the fitness and propriety of an individual. The
regulators clarify that firms will be expected to take reasonable
steps to obtain references from all current and former employers
even where those employers are firms outside the UK. However, the
regulators recognize that there may be legal impediments to
obtaining such information and will take those into account when
assessing a firm's compliance. The PRA has also published
revised supervisory statements which set out more fully how the PRA
expects firms to comply with the new rules.
The revised rules will become effective from March 7, 2017,
although firms are being encouraged to use the revised template
before that date. The PRA and FCA will consider whether to extend
the regulatory reference requirements to other firms once the
SM&CR is extended to all other UK-authorized firms.
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