Is the regulatory reference the new passport to working in finance?

December 11, 2019
Carol L’Heveder


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A recent employment case led by gunnercooke partners Jonathan Golden and Carol L’Heveder working respectively on employment and regulatory issues has highlighted the real challenges faced by senior financial executives when leaving their firm and looking for a new role. Using their combined experience in this sector, they forced a resolution of an unresolved disciplinary investigation which would have made it impossible for the client to secure a senior role in the financial sector.

This is because most  executives in the financial sector will need a regulatory reference which will be  the new passport for working in finance.  Without professional advice on the transition to the new regime, individuals may be left out in the cold without a job. If you fall into the category of people who will need a regulatory reference, you may need to think and act now.

SMRC is extending its reach in December 2019 to cover most financial firms.  Regulatory references are therefore fast becoming the necessary passport to landing the next role.  This is because a regulatory reference is an essential requirement for most roles.  It is important to remember that the roles requiring a regulatory reference will not only include front office banking or investment roles, but also non-executive roles and potentially consultancies in the financial sector. 

The form of the regulatory reference is determined by the regulator.  It consists of questions regarding fitness and propriety and past investigations and disciplanary processes to which yes/no answers must be provided with explanatory comments from the employing firm.  As the references usually cover the past 6 years, and because the yes/no regime may result in answers being somewhat blunt and out of context, it is important to think beyond the immediate next role and get an unqualified reference that will stand the test of time, as well as further role changes. 

This issue is particularly acute when a departing employee has unresolved disciplinary or conduct issues.  Today, the employing firm does not have a strict obligation to resolve outstanding issues before an employee departs (although it must treat employees fairly).  This means employees should be proactive about addressing any outstanding issues they may have whilst still employed at their firm and, if necessary, put pressure on the employer to resolve them clearly and in writing before leaving or before promotion, given the importance of the reference in ensuring future roles. 

In this recent case, the right outcome was based on several factors which are likely to  be relevant in most cases.  These included (1) vigorously defending any allegations made against the employee in or prior to a disciplinary meeting (and not giving up); (2) assessing the firm’s policies and raising a grievance if the employee has been treated unfairly in the disciplinary or a whistleblowing claim if justified; (3) identifying the FCA senior manager(s) to whom the matter can be escalated if there is no, or an unsatisfactory, resolution; and (4) finding a balance between financial compensation and the benefit of an unqualified regulatory reference (because even if downgraded to a performance matter, any internal investigation findings may still have financial consequences on variable pay and benefits).

Financial institutions are increasingly constrained by the regulatory system generally and also in connection with the new regulatory reference, and so will find agreeing announcements and settlement agreements more challenging.  As employment and financial regulation experts working in tandem, we can advise and usefully help departing employees navigate this minefield for the best outcome possible. Carol L’Heveder and Jonathan Golden have successfully done this on several occasions and most recently obtained an unqualified regulatory reference, full redundancy monies and grossed up cost.

If you would like further information on how we can advise or help, please contact Jonathan Golden or Carol L’Heveder.