How to implement regulatory reference recruitment procedures

To comply with the Financial Conduct Authority (FCA), you must obtain a detailed "regulatory reference" for any new hire entering a Senior Management or Certification role. This process requires you to request a formal reference covering the candidate’s previous six years of employment history, ensuring they meet the "fit and proper" standards required under the Senior Managers and Certification Regime (SM&CR) before they begin their duties.

Understanding Regulatory References

In the financial services sector, a standard character reference isn't enough. Regulatory references are a specific legal requirement designed to prevent "rolling bad apples"—individuals with a history of misconduct moving from firm to firm without their new employers being aware of past issues. These references focus strictly on a candidate’s fitness, propriety, and conduct over the last six years.

Step-by-Step Implementation

1. Identify who needs a reference: This procedure applies to anyone you are hiring for a Senior Management Function (SMF) or a "Certified" role (someone whose job could cause significant harm to the firm or its customers).
2. Request the 6-year history: You must request references from all of the candidate's previous employers within the last six years. This includes both financial and non-financial firms, though only financial firms are legally obligated to respond in the mandatory FCA format.
3. Use the mandatory template: The FCA provides a standardised template (found in the FCA Handbook, SYSC 22 Annex 1) that you must use when requesting or providing a reference. It asks specific questions about disciplinary action and breaches of the FCA Conduct Rules.
4. Verify the information: Once received, check the reference for any "disclosable matters." If an employer has noted a breach of conduct, you must assess whether this impacts the candidate's suitability for the role.
5. Internal Record Keeping: Keep a copy of every reference requested and received. If you decide to hire someone despite a negative reference, you must document the rationale behind your decision to demonstrate they are still "fit and proper."

Providing References for Former Staff

The system works both ways. If a former employee moves to another regulated firm, you are legally required to provide a regulatory reference to their new employer. You must:

• Respond to the request within 10 working days wherever possible.
• Be honest, fair, and provide a true reflection of the individual's conduct.
• Include any disciplinary action taken due to a breach of Conduct Rules within the last six years.

A Note on Confidentiality: While you have a duty to disclose misconduct, you must also comply with UK GDPR. Ensure your employment contracts and privacy notices explicitly state that you will share regulatory references as part of your legal obligations.

Tips for Success

Don't leave it until the last minute: Obtaining references can take time, especially from larger firms. Start the process as soon as you have a preferred candidate. You cannot formally "certify" an employee as fit and proper until the references are in.

The "Update" Rule: If you discover new information about a former employee that would have changed a reference you gave in the past (up to six years ago), you are required to proactively update the new employer. It is helpful to keep a simple spreadsheet to track where your former certified staff have moved to.

Requirement	Details
Timeframe	Covers the previous 6 years of employment.
Mandatory Roles	Senior Managers and Certification staff.
Deadline for Providing	Usually 10 working days from receipt of request.
Format	Must use the template prescribed by the FCA.