Tapestry Financial Services Alert: UK - mandatory detailed references for senior employees

 
October 2015

Dear Client,

Summary

The UK’s PRA and FCA  have published proposals for increased mandatory disclosure as part of the referencing process for senior hires (including NEDs) in banks and insurance companies. This means that a previous employer will no longer be able to simply provide the dates that the individual worked for them in their reference;  a more comprehensive view of the candidate’s background in the industry is required:

• PRA and FCA propose that from March 2016 a mandatory form should be used for these hires.
• References on former employees should go back six years, a year longer than initially indicated.
• References should include breaches of the FCA’s conduct rules, formal warnings and instances where pay was docked as part of a disciplinary action.

Additional: Whistleblowing

Since the financial crisis in 2008, policymakers in Britain have strived towards a simplified system through which staff are able to raise concerns. On Tuesday the regulators also published rules to introduce a formal, standardised procedure which will protect ‘whistleblowers’ at banks, encouraging people to express any concerns.
 
Tapestry comment:
These proposals aim to make staff in the financial services sector more accountable for their actions, and give companies a more accurate view of the candidates which they are considering. Banks must be careful not to enter into any arrangement limiting their ability to disclose that relevant information to ensure that they are not subject to any data privacy consequences.  

Banks providing the reference owe a duty to former employees and recipients to exercise due care and skill in the preparation of the reference. The reference should be an honest view of the employee based on verified information and opinions. Failure to take reasonable care in providing a reference can lead to defamation claims (from the former employee) and claims for negligent misstatement (from both former employees and the recipients of the reference). Companies will need to make sure they keep records of the references they give. 

Going forward, the regulators have also said they would consider in a separate consultation applying these requirements to all the firms they authorise.

The UK Parliamentary Commission on Banking Standards has wanted the regulators to find some way to apply malus and clawback to sign-on arrangements with new employers so that if bad things come to light those sign-ons could be forfeited. This is very hard to do. The approach to require more detailed references will go some way to provide visibility where an employee is known to have breached regulatory requirements or had disciplinary proceedings in their previous employer. 

We will keep you updated with any future developments.

Janet, Chris and Rebecca.

   
Janet Cooper         Chris Bloor           Rebecca Campsall