RegulationOct 6 2015

Regulators to clamp down on misleading references

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Regulators to clamp down on misleading references

The Financial Conduct Authority and Prudential Regulation Authority have launched a consultation on proposed changes to the way firms seek and provide references for candidates of certain roles.

The move comes as part of the wider reform package that aims to improve accountability in banks and insurers.

The FCA and PRA have already consulted on regulatory references proposals for banks, building societies, credit unions and investment firms, but both delayed making rules in order to reflect on the recommendations of 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 proposals include mandating the inclusion in references of concluded breaches of conduct requirements going back six years and requiring disclosures in a standard format, including the need to confirm where there is no relevant information to disclose.

The new rules would apply to senior management functions under the senior managers regime, significant harm functions under the certification regime, PRA senior insurance management functions under the senior insurance managers regime, FCA insurance controlled functions, notified non-executive director roles and credit union and key function holders within an insurer.

Simon Morris, a financial services partner with law firm CMS, explained that the requirement to give a clear and honest staff reference is central to the new regulatory regime.

“For too long dishonest or incompetent traders and advisers have drifted from firm to firm, protected from exposure through their ex-employer’s reluctance to state that they are either no good or not to be trusted.

“This is set to change, and HR departments will no longer be allowed to issue bland references giving dates of employment and nothing else.

He added that this may expose a firm giving “a frank but damaging reference” to the risk of litigation, “but the regulators see this as a price worth paying to drive out the rotten apples”.

The deadline for comments is 7 December, with final rules in a policy statement due in early 2016, ahead of the start of the new accountability regime on 7 March 2016.

peter.walker@ft.com