On 9 December 2019 the Senior Managers and Certification Regime (SMCR) will be extended from dual regulated firms (larger financial institutions) to FCA solo-regulated firms including M&A boutiques and many in the wealth, insurance and asset management sector. Here are 5 ways this may impact job hunters who are FCA regulated individuals:
- Under the SMCR, for all except senior managers, the firm rather than the FCA decides whether to certify an employee as fit and proper (and whether to re-certify them each year). Given potential employers will no longer be able to rely on FCA approval for an incoming employee with a blot on their record, they will probably be reluctant to recruit anyone into a certified role who does not have a perfect record.
- Employers will have to introduce their own vetting systems to certify staff. For recent and new joiners this will include seeking references covering the last six years. Former employers giving those references who are FCA regulated will have to provide detailed information not just on whether they consider someone fit and proper but anything relevant to the consideration of fitness and propriety. If in doubt they are likely to disclose rather than withhold information to be sure they have complied with their regulatory obligations. It may therefore be possible that individuals who were approved under the old regime might not be under the new one. Some certified staff may be unwilling to move to a new job out of fear that a different employer might refuse to certify them.
- It is highly advisable that anyone with concerns about their background should tell a potential employer about any skeletons in their cupboard during the recruitment process and seek confirmation that the new employer will still certify them as fit and proper before they resign from their current job. Even this is not fool-proof: if the references when received give the impression that the matter is more serious than previously thought the new firm could re-think its position on certifying.
- Negotiating references with the firm you are leaving (references that omit information or are economical with the truth, for example) will no longer be accepted practice and this is, in fact, specifically prohibited. Related to this whereas in the past, faced with a regulatory allegation an employee might have resigned and moved on before a determination had been made in order to preserve a clean record, under the new system there is now a much greater incentive to contest any allegation in an effort to maintain a clean record.
- Senior managers will still be approved by the FCA. Yet under the SMCR the FCA can take enforcement action against them personally if there is a regulatory breach within their area of responsibility and if they fail to take reasonable steps to prevent or stop that breach. Increased accountability after all is the main purpose of the new regime. Since the FCA will be deciding what should have been done with the benefit of 20:20 hindsight there is a real risk that senior managers could be sanctioned in future for failing to deal with a problem which they were not able to spot. Some senior managers may demand higher pay packets as a result of the new level of responsibility they are taking on and some capable senior managers may even choose to leave the industry rather than risk clawback of their bonuses and accrued compensation.
The SMCR is designed to ensure that senior managers take responsibility for what happens within their business and it is likely to make them more proactive in the way they oversee the business. Regulated financial services professionals operating under this regime will need to maintain squeaky clean regulatory records if they want to play in the job hunting market in future.
The author is Adrian Crawford, employment partner at Kingsley Napley LLP
Photo by King's Church International on Unsplash
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