Shearman & Sterling LLP | Financial Regulatory Developments Focus | UK Regulators Revise Rules on Regulatory References
Financial Regulatory Developments Focus
  • UK Regulators Revise Rules on Regulatory References

    The Prudential Regulation Authority and the Financial Conduct Authority 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.

    View the PRA's Policy Statement and Final Rules.

    View the PRA's updated Supervisory Statement under SM&CR.

    View the PRA's updated Supervisory Statement under SIMR.

    View the FCA's Policy Statement and Final Rules.