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Implementing the Regime

Implementing the Regime



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Full video transcript available below:

Welcome and thank you for joining today's webinar hosted by me, Joe Boyhan of MyComplianceOffice, and Gregory Brandman and Simon Collins of Eversheds Sutherland.

As I think we alluded to earlier, in conjunction with the roll out of the senior managers and certification regime to banks and insurers, and systemically important firms, if you like, who were first up for the new regime. New rules were brought in, they were announced late 2016 and came into affect earlier this year, the requirement of firms currently subject to the new regime to obtain regulatory references.

Now, these have been relatively controversial because they significantly expand the scope of what was previously required for regulated firms. There was always a need to provide a reference if it was requested for regulated firms, but now there is a positive obligation to obtain references for relative individuals, specifically senior management function holders that we're going to be focusing on, mindful of time here.

In obligation on firms that are currently within the scope of the senior manager and the certificate regime to obtain references before regulatory approval is obtained for the senior management function holders, and anyone else who still, for whatever reason, requires approval for a controlled function. This obligation is to take reasonable care, obviously. It's not within your gift to obtain a reference. You have to ask for that reference to be provided by previous employers, but that requirement stems back to the past six years.

Your perspective candidate will let me to let you know which employers they had during the previous six years. You will then need to take reasonable steps to obtain references from those employers going back to that period in time. Recipients who have requested references are also subject to various obligations, including to provide a reference normally within six weeks, and to compile the reference information on a mandatory template which has specific questions which require to be answered and specific data fields which need to be completed.

There is also a duty on the provider references to update that reference, but only to the current employer of an individual. That duty to update we'll stem back, we'll go back six years in time, and therefore firms will need to ensure that its record keeping arrangement enable it to comply with that requirement to go back, back far in time. In fact, in relation to information that is of significant materiality to an assessment of fitness and propriety in relation to potentially serious misconduct, the obligation goes back further in time than that.

The final bullet on this slide which talked about firms not being allowed to restrict, for example in a settlement agreement, their ability to disclose relevant information to people seeking references in the future, that's essentially just restated the rule as it currently applies. There's no new obligation created there. You were always restricted from preventing yourselves by contract from providing information in accordance with your regulatory obligations. Next slide, please.

I've already alluded to what the manager template requires firms to disclose in the context of regulatory references and we've set down some examples there. Particular note to be taken of concluded breeches of individual conduct. Also, there is an ongoing obligation for firms within this regime in the context of disciplinary action, or investigative steps, to ascertain whether the misconduct over a particular member of staff amount to a breech of a conductal. If it des, that will need to be reported to regulators and disclose on the regulatory reference template.

More broadly, [inaudible 00:35:16] of disciplinary action also need to be disclosed in rather more detail, I'm afraid, than you could have gotten away with with a vanilla reference in the past. In particular, the details of disciplinary action taken where it was imposed as a consequence of a breech of an individual conduct requirement. You will need to provide a considerable amount of detail relating to that that also a data field within the template, the mandatory template, which needs to be completed relating to any other relevant information.

Now, the important thing to bear in mind is here that this need not be detrimental or derogatory information. Mindful of the additional detail which firms are now required to provide, there is a consciousness that it may be mitigating circumstances around a particular bit of misconduct or a breech of a conduct requirement which is disclosed in the template that might be mitigating the information which firms, former employers, current employers, ever, ever perspective candidate will want to disclose. There is the flexibility to do that within the template you can provide mitigating or indeed positive information as well, if you consider it appropriate to do so.

I'm now going to hand it over to Simon to walk through the last few slides around the implementations that in case of disciplinaries.

If we could have the next slide, please. All we try to do with this slide is just give you an indication here of the key supervisory areas where the regulators have been undertaking certain degrees. The supervisional load has overall been actually quite quiet from the regulator's perspective.

They came back with some feedback in September. Our last firms have actually run into some significant difficulty, then general supervision has been quite light. We know that a number of the overseas banks that receive questionnaires around, for instance, the embedding of the regime. I just wanted to highlight a few areas where we've certainly been engaged with our clients in terms of issues to discuss.

On the responsibilities map, if we sort of follow around from there, it's just making sure that that has been updated to reflect major changes and then resubmit it in, and there are no gaps in the overall structure of that responsibilities map. I've touched on statements and due to the responsibility, from a point of view of again just making sure that those are current, that they do reflect your old profiles as well. Certainly we've found in some cases where old profiles have fallen slightly behind and therefore senior managers have found some degree of discomfort when they've looked at their old profile and thought, "Actually, I'm not really sure if I am doing that particular part of this role."

Fit and properness I'm going to come back to in a moment. Whistleblowing, this, again, as I mentioned at the very start. It's been major area where firms have been spending time. This is probably being driven by this fact that firms now need a whistleblowing champion. That has tended to be, for instance, someone who may be sharing the audit committee as perhaps the most independent of individual, but it has necessitated training and embedding linkage into overall performance. Firms are probably feeling that they should be having more whistleblowing incidents and ensuring there that individuals know exactly what it is in terms of what is a whistleblowing incident or degrievance is important.

Handovers, they've been a very tricky area as well. Whether or not they're a continually updated document, like a living will for instance, and where a number of firms have adopted that approach, or whether in fact determined by the risk archetype of the firm. They only conclude those handovers at a time when an individual is either moving on or changing role. The challenge can, in fact, there is some issue with the senior manager and they're going to need to leave very quickly and a handover is not possible. That is where the living will aspect with a number of, the way that firms have looked at it, has certainly helped.

 

This webinar was co-hosted with Eversheds-Sutherland

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