The Fair and Effective Markets Review (FEMR) recommended that “the FCA and the PRA should consult on a mandatory form for regulatory references, to help firms prevent the ‘recycling’ of individuals with poor conduct records between firms, with a view to having a template ready for the commencement of the Senior Managers and Certification Regimes in March 2016.”
The FCA and the PRA accepted this recommendation and have now jointly published Consultation Paper FCA CP15/31 PRA CP36/15 Strengthening accountability in banking and insurance: regulatory references (CP15/31). In CP15/31 the FCA and the PRA set out proposals for how the FEMR recommendation will be met in respect of banks, building societies, credit unions and PRA investment firms (collectively referred to as Relevant Approved Persons or RAPs) and insurers.
CP15/31 sets out proposals for regulatory references for candidates applying for:
- Senior management functions (SMFs) under the Senior Managers Regime;
- Significant harm functions under the Certification Regime;
- PRA senior insurance management functions (SIMF) under the Senior Insurance Managers Regime (SIMIR);
- FCA insurance controlled functions;
- Notified non-executive director (Notified NED) roles with a Relevant Authorised Person or Solvency II firm;
- Non-executive director roles in credit unions; and
- Key function holders (KFHs) and Notified NED roles within an insurer.
Some of the key proposals in CP15/31 are:
- Requiring RAPs and insurers to request regulatory references from former employers of candidates applying for SMFs and certification functions in RAPs, along with SIMFs at insurers, going back six years;
- The PRA proposes a similar requirement for RAPs and insurers in respect of candidates applying for a KFH, Notified NED or credit union NED role;
- Modifying certain prescribed responsibilities for Senior Managers in RAPs and insurers to include compliance with the regulatory reference rules;
- Mandating the inclusion of concluded breaches of the conduct requirements of FCA Conduct Rules, PRA Conduct Rules or Conduct Standards, and Statements of Principle and Code of Practice for Approved Persons going back six years;
- Requiring disclosures by RAPs and insurers in a standard format, including the need to confirm where there is no relevant information to disclose; and
- Requiring RAPs and insurers to update previous references given in the past six years, where they become aware of matters that would cause them to draft that reference differently if they were drafting it now.
The existing requirement for firms to disclose all relevant information in references remains. Firms should exercise judgement on what should be disclosed, including outside of the mandated information. In doing so the reference should meet the firm’s legal obligations to ensure that it is clear, accurate and fair.
The PRA also sets out in CP15/31 its proposals for all KFHs at insurers to have an up-to-date and agreed document setting out their scope of responsibilities (SoR) and for these insurers to retain the SoR documents along with an associated governance map for ten years for Solvency II insurers and six years for large non-Directive insurers.
The deadline for comments on CP15/31 is 7 December 2015. The FCA and PRA expect to publish a Policy Statement in early 2016, ahead of the start of the new accountability regime on 7 March 2016.