This article was originally published by Compliance Monitor.

Introduction

As part of the new accountability regime, the PRA and the FCA have proposed to provide increased oversight of the references provided to firms when hiring for certain roles. They also seek to regulate the contents of those references. They have outlined their proposals in a joint consultation paper published in October 2015 (FCA CP15/31, PRA CP36/15).

This proposal arises out of a concern described in the Fair and Effective Markets Review (FEMR) as the "rolling bad apples" problem. The problem is that individuals with poor conduct records (the "bad apples") have been "recycled" between firms.

FEMR notes that this is at least in part attributable to deficiencies in references. For example, settlement agreements with employees leaving firms have often contained limits on the scope of information released in references. This is despite an existing rule that the obligation to provide a reference overrides any such agreements (in current SUP 10A.15). It appears that especially where employees are leaving under the shadow of a disciplinary investigation, in some instances these contractual limits may have allowed them to move onto other firms without concerns about their conduct being revealed.

FEMR rightly notes that if so-called "bad apples" are prevented from being able to restrict the contents of their references, then at least theoretically this should stop individuals with poor conduct records carrying that poor conduct to different firms. This is the broad justification for the new quite prescriptive proposals which will (if adopted) largely be set out in a new Chapter 22 of SYSC and SUP 10A.16 in the FCA Handbook and new chapters in the PRA's Fitness and Propriety Rulebooks applicable to CRR firms and insurers.

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