20 November 2018
FCA Extends Strict Standards Regime to Insurers… What Does This Mean For You?
Strict new rules governing senior mangers’ behaviour and conduct are about to be imposed on insurers as part of attempts to improve the culture within the industry.
The Senior Managers and Certification Regime (SMCR) is a key part of Financial Conduct Authority (FCA) regulation to clamp down on staff misconduct.
It currently applies to all banks, building, societies and credit unions. As from December 10, 2018 it will be extended to cover the insurance industry and those that work within it and to all other FCA/PRA authorised firms from December 2019.
Senior managers and staff subject to the Certification Regime must meet certain standards of fitness and propriety. Under the FCA rules, fitness and propriety is judged by reference to an employee's honesty, integrity and reputation, competence and capability and financial soundness. The FCA handbook sets out a list of 13 factors considered in relation to this at FIT 2.3, and these include things like whether or not an individual has a criminal conviction. SMCR also requires firms to provide regulatory references for certified staff.
FCA Clamps Down on Non-Financial Misconduct
The FCA recently published an overview of how the FCA views non-financial misconduct, particularly sexual harassment, which it very clearly views as misconduct falling within the scope of its regulatory framework.
The letter talks about workplace culture in an organisation being a key root cause of major conduct failings within the financial services industry in recent times and that the FCA expects firms to foster healthy cultures which support the spirit of regulation. It is clear that where there is a poor culture, this can lead to regulatory failings, particularly when people can become afraid to speak out about issues and challenge management decisions.
Firms Told to Foster Healthy Culture
Also highlighted is that FCA supervision seeks to ensure that firms understand the importance of healthy culture alongside diversity and inclusivity.
The letter emphasises that where individuals are applying to the FCA to be an approved person, their “honesty and integrity are explicit factors” to be taken into account and individuals not meeting the requirements will not be approved.
Regulated firms need to have an open and co-operative relationship with the FCA and disclose to the regulator promptly any potentially serious misconduct and conduct rule breaches. Serious misconduct involving senior staff needs to be reported within 7 days.
The FCA has stated in the letter that individuals can use its whistleblowing procedures and provides encouragement for people to come forward and approach them with concerns.
In conclusion, the letter says that the FCA will continue to focus on “poor personal misconduct” and it is a topic which they “are increasingly discussing with firms.”
As a result, firms should now be taking active steps to look at workplace culture and the interaction with FCA regulation, in relation to personal conduct among individual employees, with particular emphasis on senior management, as well as the conduct of the organisation as a whole. Misbehaviour that may have once been tolerated or swept under the carpet is likely to be subject to FCA action, even where this is non-financial or not directly arising from the services provided.
What does this mean for employees?
Individuals who work in the financial services industry should be mindful of the FCA approach irrespective of whether or not they are subject to SMCR and should be aware of the requirements for FCA authorisation.
Even where an individual is working in the financial sector, and is not required to be FCA registered, they may later decide to join a firm where they are required to be in a registered role, at which point their prior conduct going back at least six years will be scrutinised.
Individuals who are FCA registered need be aware of their personal conduct at all times and observe FCA conduct rules. They should be mindful of the now annual requirement on the firm to certify an employee’s fitness and propriety and that they will need a regulatory reference if they are moving between regulated firms.
John Marshall and Danielle Parsons are employment solicitors within our employment law team in London.