Earlier this month, the Banking Standards Board (BSB) published the final version of its statement of good practice relating to the regulatory reference requirements established by the FCA and PRA for FSMA authorised firms under the Senior Managers and Certification Regime (SM&CR).
The regulatory reference rules under SM&CR apply to all firms that are authorised persons under the Financial Services and Markets Act 2000 (FSMA), or have permission to carry out FSMA regulated activities in the UK, as well as all insurance and reinsurance firms regulated by the FCA and the PRA.
The guidance contained in the statement published this month was prepared in partnership with BSB members through a cross industry certification regime working group, and is based on the three principles of fairness, proportionality and consistency. In particular, it covers good practice when it comes to both providing and obtaining regulatory references, as well as the type of information to include in a reference.
The purpose of regulatory references, which came into effect in March 2017, was to establish a framework to allow and require firms to share relevant information on certain individuals’ proper conduct, fitness and propriety (F&P) in order to support their assessment of potential new recruits as fit and proper. The rules were established with the overarching goal of preventing the “recycling” of individuals with poor conduct records between firms. The aim being to prevent financial, legal and reputational damage that individuals in risk-taking roles and with a history of misconduct could cause firms and the industry as a whole, as well as avoiding the negative consequences such damage could have for clients and wider society.
The rules set out three principal responsibilities for firms: to seek regulatory references when considering the appointment of individuals to senior management functions (SMFs), certification roles or as notified non-executive directors (NED); to provide regulatory references when requested; and to revise and, if necessary, update references if information comes to light that would affect a firm’s assessment of an individual’s F&P. These rules require firms to put policies and processes in place to comply with their responsibilities as they relate to recruitment and certification processes, and the guidance published by the BSB this month is intended to assist firms in doing this. The statement provides a high-level set of principles for firms to be able to scrutinise their own policies and procedures against the BSB’s suggested processes, and provides an example minimum standard for them to adopt.
Along with the guidance, the BSB published its summary of the consultation it conducted of its draft guidance back in January 2019. The BSB stressed the importance of firms adhering to the spirit of the regulations, and noted that it had specifically included in the published guidance ways in which firms could ensure that they did this with respect to each of the three key principles it had identified.
Whilst not imposing any new obligations on BSB members or intended to replace any existing regulation, this guidance provides a helpful check for firms on what constitutes a “good” standard set of policies and procedures. Firms should ensure that they review their internal policies against the outlined guidance, and that they remain alive to the requirements of the SM&CR rules when hiring or providing references for individuals covered by the regulation.
