• Robert Bell

Regulatory References Under SMCR

Since the SMCR rolled out to solo-regulated firms in December, we’ve had lots of queries about the practicalities of the regulatory references. In short, this obligation means that firms must request a reference for candidates for Senior Manager functions, Non-Executive director positions and for Certification functions, and they must ask for specific information within that reference. Firms are also obligated to give a regulatory reference if this is requested – and we’ll look at these obligations in a little more detail here.


Regulatory References Under SMCR

SMCR firms looking to appoint someone to one of the applicable roles now have to take reasonable steps to obtain the required information from each firm that employed the candidate within the previous six years – even if those firms are based overseas or are non-financial sector firms.


There is also a requirement to provide a regulatory reference when asked to. This applies to the receiving firm when the candidate worked there within the previous six years of the request, and when the requesting firm is considering appointing the candidate to a senior manager, non-executive or certification position, or to one of the positions defined in the PRA Rulebook.


SYSC tells us that the reference should be provided ‘as soon as reasonably practicable’, which in practice means within six weeks – bearing in mind that in the case of Senior Manager positions, the requesting firm should receive the reference no later than one month before the end of the process to apply for the function with the FCA. In general, most of the information to be provided is relatively straightforward, but clear processes and procedures will make the gathering of information easier in practice, as the main requirement here is that the receiving firm should provide all of the information required as set out in SYSC 22 Annex 1R. Firms should follow the template as a guide to what needs to be included, and the onus is on the firm that drafts the reference to ensure that all of the information is included. The template provides the minimum requirements but firms can include supplementary and additional information, as long as that information is lawful.


So, what about the content? The ‘what’ is covered by the template – and broadly should include any breaches of the Conduct Rules, any findings that the individual was not fit and proper, and any founded and completed disciplinary outcomes. But the how is open to some interpretation. The general rule, however, is that what is supplied must be accurate and fair, and based on documented fact. Opinions can be given, but these must be based on evidenced fact. If any allegations have been made against the subject of the reference, for example, the firm must have allowed that person the opportunity to comment through the proper disciplinary proceedings. The verification of the information is an important factor. Firms that begin but do not complete disciplinary proceedings against an individual who left during proceedings do not need to include that information within the reference as this could imply guilt where a completed process may have found none – although firms can choose to do so if they think it is important.

The reference must disclose completed disciplinary action taken against the individual within the previous six years – but incidents that began before the six-year time limit should be included if they ended within the previous six years. So, for example, action taken for a breach of the conduct rules that began in 2020 and ended in 2021 would need to be included in a reference requested in 2027. It is worth remembering that for ‘serious matters’ there is no six-year limit. It is up to the receiving firm to decide what counts as ‘serious’, but the firm should consider whether the requesting firm is likely to need to know the information to properly assess the candidate’s fitness and propriety to perform the function, as a guide. Firms can include information about mitigating circumstances, and can include positive views of the individual – for example when reporting a breach of the Conduct Rules, a firm can note that that breach was uncharacteristic and use an otherwise unblemished record as supporting evidence.


In most cases, once the reference has been sent and received, that’s the end of the story. However, if a firm, once the reference has been given, later becomes aware of information that would have changed the content of the reference that has already been sent, and that information would have an impact on the assessment of the fitness and propriety of the individual, then the reference-giving firm has an obligation to update the requesting firm with the details in writing as soon as possible. In this case, the firm that drafts the reference must have given the individual the opportunity to comment on any allegation included in an update.


Drafting firms should also bear in mind the legislation relating to employment references – which is why it is so important that information and opinions included on regulatory references are true, and can be supported with factual evidence.



Conduct Rules Training

Training courses to comply with the FCA's annual training requirement

Compliance Resource Library

Download our FCA Guidance, SM&CR and GDPR Compliance Resources

© 2020 by RB Compliance Consultancy Ltd.

Registration No: 07904749.  All rights reserved. 

Created by Michelle Lucherini Marketing