Regulatory Reference Rules Now In Force Under Senior Managers Regimes

Author:Mr Nick Wilcox
Profession:Brahams Dutt Badrick French LLP

As of 7 March 2017, many executives working in banking and insurance now come within the scope of the new regulatory rules relating to references. Although the full regime has only now come into force, this regulatory development has already had a palpable effect on the employer-to-employee relationship in those sectors.


For context, the rules form part of the senior managers regimes, introduced by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) in March 2016 in response to the global financial crisis and a desire to more closely regulate the conduct of individuals.

The senior managers regimes are known in banking as the Senior Managers and Certification Regime (SM&CR) and in insurance as the Senior Insurance Managers Regime (SIMR). They are underpinned by the recommendations of the Parliamentary Commission on Banking Standards, which consulted and reported on professional standards and culture in the UK banking sector, and by the subsequent Financial Services (Banking Reform) Act 2013.

In 2013, in the wake of the Libor and FX-rigging scandals that have featured regularly in the news, the Bank of England's 'Fair and Effective Markets Review' made further recommendations aimed at raising individuals' conduct standards, including that the FCA and PRA should consult on a compulsory form of regulatory reference.

The new rules are the culmination of this, and have among their aims the identification and prevention of the 'rolling bad apple' - the individual who moves from employer to employer to avoid their conduct history from catching up with them.

What do the new rules require?

The full rules are intended by regulators to be a key tool in enabling firms to share relevant information to support their assessment of candidates' fitness and propriety. These are those who are candidates for senior management functions, significant harm functions, senior insurance management functions, controlled functions, key function holders and notified non-executive directors.

The new rules contain a mandatory form of standard reference, which specifies information that must be included. In addition to identifying the individual, it must include: whether they performed a significant harm function or had been an approved person at the firm; whether they were in a specified role, such as a key function holder or notified non-executive director; whether any disciplinary action was taken against them that amounted...

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