Published on 28 September 2016
Strengthening accountability in banking and insurance: PRA requirements on regulatory references (part II) - PS27/16
This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to those responses relating to the proposals on regulatory references in consultation paper (CP) 36/15 ‘Strengthening accountability in banking and insurance: regulatory references’ (see related links) that were not addressed in the first set of final policy in PS5/16 ‘Strengthening accountability in banking and insurance: Implementation of SM&CR and SIMR; and PRA requirements on regulatory references’.
This PS should be read in conjunction with Financial Conduct Authority (FCA) PS16/22 ‘Strengthening accountability in banking and insurance: regulatory references’ which contains the FCA’s equivalent final rules and guidance on regulatory references, as well as PRA PS5/16.
This PS includes:
- final sets of new and revised PRA rules on regulatory references (Appendix 1 for Relevant Authorised Persons (RAPs), Appendix 2 for insurers);
- a revised Regulatory Reference Template (Appendix 3); and
- revisions to supervisory statements (SS) 28/15 ‘Strengthening individual accountability in banking’ and SS35/15 ‘Strengthening individual accountability in insurance’, setting out the PRA’s expectations of how full-scope regulatory reference firms should comply with the rules included in PS5/16 and this PS.
This PS is relevant to all PRA-authorised firms and candidates for roles in scope of the regulatory reference requirements (referred to as relevant functions in this PS).
- PRA RULEBOOK: CRR FIRMS: NON-CRR FIRMS: FITNESS AND PROPRIETY AMENDMENT INSTRUMENT 2016 Download PDF
- PRA RULEBOOK: SOLVENCY II FIRMS, NON-SOLVENCY II FIRMS: SENIOR INSURANCE MANAGERS REGIME AMENDMENT INSTRUMENT 2016
- Regulatory Reference Template
- Supervisory Statement 28/15 UPDATE
- Supervisory Statement 35/15 UPDATE
Published on 6 October 2015
Strengthening accountability in banking and insurance: regulatory references - CP36/15
Employment references that pass between firms when individuals move roles (in this consultation paper (CP) ‘regulatory references’) are an important tool for employers in assuring themselves that they are hiring the right people. This consultation forms part of the wider package of reforms that aim to improve accountability in relevant authorised persons* (RAPs) and insurers – see the dedicated ‘Strengthening Accountability’ webpage for more information and a summary of policy development.
This CP will be of primary interest to RAPs, insurers and individual candidates for roles in the Senior Managers Regime (SMR), Senior Insurance Managers Regime (SIMR) and Certification Regime (CR), including notified non-executive directors* (NEDs) and Key Function Holders* (KFHs). The proposals in Chapter 3 will also be of interest to all authorised firms; the proposals in Chapter 4 will be of interest to all KFHs in Solvency II insurers and large non-directive firms (NDFs) as they relate to the scope of responsibilities documents, and the associated governance map.
* ‘Relevant authorised person is used in section 71A of the Financial Services (Banking Reform) Act 2013 to describe deposit-takers and PRA investment firms.
** Definitions available in the PRA Rulebook.
Summary of proposals
The main proposals for RAPs and insurers (ie Solvency II insurers and large NDFs) are:
- Requiring these firms to request regulatory references from former employers of candidates applying for SMF, and certified function RAPs, along with SIMFs at insurers, going back six years.
- The PRA proposes a similar requirement for RAPs and insurers in respect of candidates applying for a KFH or notified NEDs role.
- Modifying certain prescribed responsibilities for Senior Managers in RAPs and insurers to include compliance with the regulatory references rules.
- Mandating the inclusion of determined breaches by approved persons, key function holders and notified NEDs, of the conduct requirements in FCA Conduct Rules (COCON), PRA Conduct Rules or Conduct Standards, and Statements of Principle and Code of Practice for Approved Persons (APER) going back six years.
- Requiring disclosure by RAPs and insurers in a standard format, including the need to confirm where there is no relevant information to disclose.
- Requiring RAPs and insurers to update previous references given more than six years ago, where they become aware of matters that would have changed their original assessment if they were giving that assessment today.
The proposals applicable to all authorised firms can be summarised as:
- Clarifying that a firm must not enter into any arrangements or agreements that limit their ability to disclose relevant information.
- Enhancing systems and controls requirements relating to the retention of records and the policies and procedures for both requesting and providing regulatory references.
The existing requirement for firms to disclose all relevant information in references remains. Firms should exercise judgement on what should be disclosed, including outside of the mandated information and time periods. In doing so, the reference should meet the firm’s legal obligations to ensure that it is clear, accurate and fair.
The regulators will consider in due course, alongside any wider reform of the Approved Persons Regime, whether the specific proposals for RAPs and insurers should be extended to all authorised firms. This will include consideration of specific, mandatory disclosures and the use of a template. Subsequent reforms will be consulted upon as usual.
The PRA is also consulting on proposals for all KFHs at Solvency II insurers and large NDFs to have an up-to-date and agreed document setting out their scope of responsibilities, and for these insurers to retain these documents along with the associated governance map for ten years for Solvency II insurers, and six years for NDFs.
The regulators originally consulted on employer references for candidates applying for the above positions in banks, building societies, credit unions and RAPs in CP14/14, and for Solvency II insurers in CP26/14 (see ‘Strengthening accountability’ in Related Links). The regulators delayed making rules in order to reflect the recommendations of the Fair and Effective Markets Review. Given that the regulators have previously consulted on related proposals the consultation period for this CP is two months. This will allow final rules to be in place for the start of the accountability regime on 7 March 2016.
This consultation closed on Monday 7 December 2015.
On 15 February 2016 the PRA published PS5/16 - Strengthening accountability in banking and insurance: Implementation of SM&CR and SIMR; and PRA requirements on regulatory references.