Regulatory References Under SMCR: What Firms Must Provide

The SMCR regulatory references requirement obliges FCA-regulated firms to provide structured information about former employees to prospective regulated employers — and creates obligations both for the firm providing the reference and the firm receiving it. Getting this process right is important for compliance and for the effectiveness of the fit and proper regime.

What Are Regulatory References?

Under SYSC 22, FCA-regulated firms must provide a regulatory reference to any regulated firm that requests one in connection with an appointment — whether as an SMF holder, a certified person or any other regulated role. The regulatory reference must cover a six-year look-back period and must disclose specific categories of information about the former employee’s regulatory conduct during that period.

Who Must Provide Regulatory References?

The obligation to provide a regulatory reference falls on any FCA-regulated firm that employed the individual in a regulated capacity during the look-back period. This includes: banks and building societies; investment firms; insurance companies; payment institutions; consumer credit firms; and any other FSMA-authorised entity. The obligation applies regardless of how the employment ended — firms cannot decline to provide a reference or provide a deliberately unhelpful one on the basis that the individual left on poor terms.

What Must Be Disclosed?

The regulatory reference must disclose: whether the firm concluded the individual was not fit and proper, and the basis for that conclusion; any disciplinary action taken against the individual for conduct that may be relevant to fitness and propriety; any finding that the individual had failed to comply with the SMCR Conduct Rules; and any outstanding investigations at the time the individual left that have since concluded with relevant findings. The reference must also cover information going back six years — including from other regulated employers if the providing firm obtained a regulatory reference when it hired the individual.

Mandatory vs Voluntary Disclosure

SYSC 22 distinguishes between mandatory and voluntary disclosures. Mandatory disclosures are those identified above — findings of unfitness, disciplinary action for conduct matters and Conduct Rule breaches. Voluntary disclosures are matters that are relevant to fitness and propriety but do not fall within the mandatory categories — for example, concerns about an individual’s conduct that did not result in formal disciplinary action. Firms can make voluntary disclosures but should take legal advice before doing so, given the potential for defamation claims where disclosures are made in bad faith.

The Receiving Firm’s Obligations

The firm requesting a regulatory reference must: request it before making the appointment; request references covering the full six-year look-back period from all relevant previous regulated employers; take the content of the reference into account in its fit and proper assessment; and update the reference if new information comes to light before the individual begins their role. A firm that appoints an SMF holder without having obtained the required regulatory references is in breach of FIT 2.1 and has not discharged its pre-appointment assessment obligations under SYSC 22.

Handling Difficult References

Where a regulatory reference discloses adverse information — a finding of unfitness, a disciplinary action or a Conduct Rule breach — the receiving firm must assess what weight to give the disclosure in its fit and proper assessment. The nature and timing of the disclosed matter, the individual’s subsequent conduct and the relevance to the proposed role all affect this assessment. The individual should be given the opportunity to respond to any adverse disclosure before a final decision is made on their appointment.

Practical Process Management

The regulatory reference process is a common source of delay in SMF approval applications and new hires. Best practice is to: initiate reference requests at the earliest opportunity, ideally before the offer is made; use a standardised reference request form that specifies the SYSC 22 obligations; follow up requests that have not been responded to within 10 working days; and document all steps taken to obtain references in case the FCA subsequently queries whether the process was adequate. Where a former employer persistently refuses to provide a reference, the requesting firm should document its attempts and consider whether to proceed on available information.

Updating References After Appointment

The regulatory reference obligation does not end at the point of appointment. Firms must update references provided to third parties if new information comes to light — for example, if a disciplinary investigation that was ongoing when the individual left is subsequently concluded with adverse findings. The update obligation requires prompt action: a firm that becomes aware of information that should have been in a regulatory reference it has provided must notify the receiving firm within a reasonable time.

Key References

• FCA Handbook SYSC 22 — Regulatory references
• FCA — SMCR guidance