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The Senior Managers Regime – Your Obligations and Overall Responsibilities

What is the SMR?

The Senior Managers and Certification Regime which was introduced for about 900 banks and deposit takers on 7 March 2016 replaced the Approved Persons Regime for banks, building societies, credit unions and dual-regulated (FCA and PRA regulated) investment firms. There are three key parts to the Senior Managers and Certification Regime which are the Senior Managers Regime (SMR), the Certification Regime and the Conduct Rules.    

The SMR applies to ‘relevant authorised persons’ and when it was implemented, aimed to raise the standards of governance in the banking sector, increase individual accountability and to help restore confidence in the sector.

Who is included in the SMR?

The SMR ensures that firms allocate the most senior management functions to individuals in a clearly defined manner - every Senior Manager needs to have a 'statement of Responsibilities' that clearly says what they are responsible and accountable for.

Senior Managers who hold one or more key functions within a firm (Senior Management Functions) must be approved by the appropriate Regulator before they can be formally appointed. The FCA Handbook and the PRA Rulebook set out 19 Senior Management Functions and usually firms are able to identify their Senior Managers based on this list. However, Senior Managers typically include:

  • Board members
  • Heads of key business areas such as Risk, Internal Audit and Finance
  • Executive team members
  • Compliance Officers
  • Money Laundering Reporting Officers

When are SMR references updated?

Under SYSC 22.2.1 the hiring firm must take reasonable steps to obtain regulatory references from past employers going back six years from the date of the reference request.

Under SYSC 22.2.4 a firm has a continuing duty to update a regulatory reference it sent previously to an individual’s employer where matters comes to light (such as misconduct) after the employee’s departure which would cause them to draft the reference differently. Again, it must do so for a period of six years from the date that the individual left the firm and this obligation is regardless of whether the past employer is authorised or not. This measure is designed to avoid the situation where an individual moves from job to job to prevent their conduct history from catching up with them.

In practical terms, this means that you may have started a new job with initially with a good reference from your previous firm, but if a misconduct subsequently comes to light within six years, your previous employer is under a duty to update your reference and inform your current employer, which could have serious implications (see below).

Can I see my references?

If you leave a job after an investigation or disciplinary procedure has commenced or concluded, you may want to ask the former employer what they would say in a reference if they were asked for one in the future. There is no obligation on the employer to agree to do this. You could also ask for the detail the employer has provided to the FCA on your deregistration by them. Again the employer has no obligation to agree to this, but you can make a Data Subject Request to FCA for this information.

How will I know if I’ve received a negative reference/what situation might indicate you’ve been given a bad reference and what impact would that have on your career?

Under, SYSC 22.5.4 a firm supplying a reference owes a duty to its former employee and the recipient firm to exercise due skill and care in the preparation of the reference and references should be true, accurate, fair and based on documented fact. However, given the obligations on your previous employer to provide accurate information regarding whether you are ‘fit and proper’ this means that you could receive a more negative reference than you bargained for.

The consequences of being given a bad reference can be far-reaching and could result in you losing a job-offer or losing your existing job and you may struggle to get work in any authorised firm.

What do I do if I get a negative reference?

Fraudulent references could potentially give rise to an actionable claim of deceit, negligent misstatement, malicious falsehood or defamation, depending on the circumstances. You may have suffered loss and damage arising from the reference, such as not being employed for a period of time and therefore you can claim for the losses incurred as a result of the fraudulent reference.  Additionally, under s 138D of the Financial Services and Markets Act 2000 (FSMA) an individual may bring a claim for damages where loss is suffered due to breach of the rules.

How can I protect myself against getting a negative reference when leaving a job?

If you are going through a disciplinary investigation and you are offered an amicable exit via a Settlement Agreement, the scope for an agreeing a reference is now reduced for all authorised firms. Under the SMR, a firm must not limit its ability to disclose information which is relevant to the reference (SYSC 22.5.13). This means there is no longer the comfort of knowing that previous misconduct will not be disclosed to a new employer. In order to mitigate the risk of a claim from the employee, some firms will offer employees or former employees the right to reply to qualifications that they propose to include in original and updated regulatory references.

It may be possible to agree some wording relating to disclosures that the firm is required to make. Whilst there is no need to disclose pending or unfinished disciplinary investigations (SYSC 22.5.1), employers may err on the side of caution and disclose this, but you could agree on wording which makes it clear that no findings (positive or negative) were made.

You should be aware however, that employers will usually ensure that they reserve a right to deviate from the agreed wording in order to comply with their obligation to provide the accurate disclosures required under the rules.

If I’ve had an adverse disciplinary finding, how will this affect my references?

Your employer will be required to provide information about the disciplinary finding in the reference as this goes towards the assessment of whether you are ‘fit and proper’.  Whilst, there is a six year time limit for misconduct, you should be aware that for serious misconduct, the six year time limit is removed (SYSC 22.5.10) and older misconduct can be disclosed. In determining whether it is ‘serious’, the FCA handbook states that the key question is how important the information still is for the requesting firm’s assessment of the employee’s fitness for the function that they are going to perform. This is therefore quite wide-ranging.

John Marshall is an employment lawyer at Slater and Gordon Lawyers in London.

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