The FCA’s approval process: more hurdles for the international elite?

Gaining approval through the Senior Managers and Certification Regime poses complexities for the international elite, write Hannah Laming and Will Green

The Financial Conduct Authority (FCA) sets high standards for those who seek approval as ‘senior managers’, and entry into the UK’s financial services market, and quite properly so.

Gaining approval via the Senior Managers and Certification Regime (SMCR) can be especially complex for the international elite and those who have lived and worked abroad for many years.

However, with forethought and a considered, proactive approach, potentially difficult issues can be addressed at an early stage, and the risks of delay or refusal of approval can be significantly reduced.

Under the SMCR, firms must undertake due diligence to satisfy themselves that individuals performing senior management functions are fit and proper to do so. They then make an application to the FCA for them to approve individuals before they start their role.

During the assessment of an individual’s ‘fitness and propriety’, the criteria for approval will consider their competence and capability, honesty and integrity, and financial soundness.

Prospective employers must seek regulatory references from the individual’s employers for the last six years and undertake criminal record checks. The level of detail required for approval by the FCA is significant, and an incomplete or inaccurate application may result in delays in it being processed, as well as follow up questions and the potential of refusal.

There are various hoops through which candidates must jump to meet the requirements of the SMCR, but there are a number of steps that individuals can take to pre-empt and overcome any challenges they might face.

UK authorised firms are required to provide regulatory references for former employees and can be expected to understand what should, or should not, be included. A regulatory reference must contain details of the individual’s role; whether there have been concerns about his/her fitness and propriety; any disciplinary action against them relating to performance of regulated functions or fitness and propriety; and any other information which the former employer reasonably considers to be relevant to the assessment.

However, there are caveats: for example, the reference need only cover the past six years’ employment, and firms are only required to disclose conduct rule breaches which resulted in disciplinary action.

The FCA expects firms to take all reasonable steps to obtain a reference from an overseas former employer. However, overseas firms are not subject to any obligation to provide a reference and may be unwilling or unable to provide the level of detail needed or, conversely, may include matters to which a regulatory reference would not ordinarily refer.

Candidates can take a number of simple steps to ease this process. First, prepare a list of overseas employers, identifying the appropriate referee and their contact details. Second, advise referees to expect a reference request and confirm their consent. Third, consider how to overcome language barriers where appropriate.

Prospective employers must also obtain a criminal record check from the UK Disclosure and Barring Service. However, if a candidate has been living or working overseas, this can be tricky.

Normally an application for a Certificate of Good Character will be made to the relevant body in the country where they have lived or worked. These processes differ widely between jurisdictions, with some even requiring applications to be made in person. Candidates can help to speed up the process by voluntarily requesting this Certificate.

Some applicants may in fact find that their applications are scrutinised even more carefully than usual. Increased scrutiny may occur when applicants have operated in a high-risk jurisdiction, or a jurisdiction perceived by the FCA to be high-risk, and there may be concerns that the regulatory framework and/or conduct rules are less onerous than those in the UK. Those who have worked for an overseas entity which has itself, or is owned by an individual or entity who has, been subject to investigation or prosecution for regulatory breaches or criminal offences (including sanctions) may also be subject to increased investigation. Finally, those with personal or business links to such individuals or entities may also be at risk here.

With this in mind, it is wise for candidates to consider in advance to whether such factors apply and pre-empt questioning.

Unfortunately, unjustified or unsubstantiated allegations made by former employers or the media may crop up. In the UK, employers are under a duty to exercise reasonable skill and care in the provision of references, and if they fail to do so, they may be liable in tort for negligent misstatement. Similarly, the media is subject to stringent laws regulating the accuracy of publications and broadcasts, with a political background of transparency and low risk of corruption. However, this is not necessarily the case in all jurisdictions and unjustified claims can occur.

If a candidate thinks an unjustified representation relating to their fitness to enter the UK market has been made, they should gather evidence to disprove the allegation at an early stage.

Hannah Laming, is a partner and Will Green is an associate, at Peters & Peters Solicitors LLP

Image: CC0 Creative Commons