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Regulatory References: the interim rules

  • United Kingdom
  • Financial services and markets regulation
  • Financial institutions


In our Quarterly briefing we reported that the FCA had announced interim measures for the implementation of regulatory references based on existing referencing requirements for authorised firms. More information on the proposals for regulatory references can be read here.

On 15 February 2016 the PRA published a Policy Statement (PRA PS5/16) providing feedback on the consultation over proposals for regulatory references and setting out the interim position pending resolution of issues raised during the consultation.

Regulatory References

The proposals for regulatory references apply to:

  • Banks
  • Building societies
  • Credit unions
  • PRA-designated investment firms

collectively known as ‘relevant authorised persons’ (RAPs), and

  • Solvency II insurers
  • Large non-Directive firms

collectively known as ‘insurers’.

Consultation Responses

Respondents to the consultation raised certain issues which the FCA and the PRA want to explore before finalising their rules. The PRA identified the following issues:

  • how best to update historic regulatory references
  • how to obtain regulatory references from certain overseas employers; and
  • the timeline for full implementation.

The FCA also identified these concerns:

  • legal considerations (e.g. data protection)
  • the rationale of applying the references to intra-group moves; and
  • concerns regarding proportionality.

The interim position

As it will not be possible to resolve the issues of concern prior to implementation of the accountability regime, the PRA and FCA have stated that interim rules will cover the gap. Meanwhile, both regulators underlined their commitment to regulatory references and to make this a priority after commencement of the accountability regime.

The PRA has issued a first tranche of rules (PS5/16) which will apply from 7 March 2016. These new rules are broadly a continuation of existing requirements under the Approved Persons Regime.

From 7 March 2016, when considering the appointment of an in-scope individual, PRA-regulated firms will be required to:

  • provide a reference to another regulated firm ‘as soon as reasonably practicable’ upon request containing ‘all relevant information’ of which it is aware. This requirement is already in force for PRA Approved Persons but from 7 March 2016 it will apply to apply to certain functions that will cease to be subject to regulatory pre-approval from 7 March 2016 (such as notified NEDs) as well as all Key Function Holders at insurers and employees subject to certification under the PRA’s Certification Rules
  • take reasonable steps to obtain appropriate references for at least the last 5 years from current and previous employers and from organisations at which the person served as a NED.

The PRA reminds firms of the common law duty of due skill and care which must be exercised when giving a reference and that former employers will owe a duty of care to their ex-employees. It is intended that the obligation to supply information in a regulatory reference should apply notwithstanding any agreement or arrangement (e.g. a termination agreement).

The FCA has published equivalent requirements in FCA PS16/3. The FCA has added rules that apply the existing reference requirements to RAPs. It also proposes not to extend the interim rules to individuals who will be performing a Significant Harm Function under the Certification Regime. The combined rules are intended to provide an appropriate regime for regulatory references pending a comprehensive framework, which is now a high priority.

This is a rather unsatisfactory make-do solution since firms will need to ensure that they and their staff have understood the extent of the interim rules and applied them accordingly. Final rules, including transitional arrangements, are expected in the summer when firms will need to get up to speed with the new rules. Firms would be well advised to familiarise themselves with the current draft rules which will not substantially change (subject to the issues under further consideration) so that they are ready for implementation.

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