Regulatory References Under SMCR: A Complete Guide

The Mandatory Reference Exchange Between FCA-Regulated Firms

The Regulatory References regime, introduced under SM&CR and set out in SYSC 22 of the FCA Handbook, is one of the most consequential operational features of the senior accountability framework. It requires regulated firms to exchange standardised references when SMFs and certified persons move between firms — covering at least the previous six years, with mandatory disclosure of conduct breach findings, fitness concerns and disciplinary action that goes beyond the disclosures typical of standard employment references. The regime exists to prevent “rolling bad apples” — individuals with conduct issues at one firm moving to another firm without the receiving firm knowing — and it has fundamentally changed how senior recruitment operates in UK financial services.

This guide explains how the Regulatory References regime works in practice — the substantive disclosure requirements, the operational reality of producing and receiving references, the interaction with settlement agreements, and the recruitment implications for both candidates and hiring firms. It also covers what FD Capital sees during senior placements where reference history matters, and what good practice looks like at both ends of the exchange.

What’s missing from most online explanations is the practical reality. The SYSC 22 framework is clearly described; what’s harder to find is what good reference content looks like, how settlement agreements actually interact with the disclosure obligation, and how candidates and hiring firms manage the process when reference history is complex. That’s the gap this guide fills.

What the Regulatory References Regime Requires

SYSC 22 imposes mandatory reference exchange between firms in the regulated population (firms within scope of SM&CR). When a candidate moves between firms, the regime operates as follows:

The new firm must request a Regulatory Reference

Before appointing a candidate to an SMF or certified role (and before approving them as fit and proper for that role), the new firm must request a Regulatory Reference from the candidate’s previous regulated employer(s). The request must cover at least the previous six years of regulated employment.

The previous firm must provide the reference

The previous regulated employer must provide a Regulatory Reference in the prescribed format set out in SYSC 22 Annex 1. The reference must include specific information regardless of whether the previous employer would normally provide a reference at all.

The receiving firm must consider the reference substantively

The new firm’s Fit & Proper assessment must substantively consider the disclosed information. Where the reference discloses adverse matters, the firm must reach a documented decision on whether the candidate remains fit and proper for the role.

The reference must be retained

Both the issuing and receiving firms must retain the reference for at least six years.

For the broader Fit & Proper framework that references support, see our Fit & Proper Test Guide.

Who and What Is in Scope

Roles in scope

The mandatory reference regime applies to:

• All Senior Management Function holders (SMFs across all firm tiers)
• All certified persons performing Significant Harm Functions
• Notified non-executive directors

For other employees, references may still be exchanged but without the SYSC 22 mandatory framework applying.

Time period in scope

The reference must cover the previous six years at minimum. Where information about the candidate is older than six years but remains relevant, the reference must include it where the firm has assessed it as relevant to fitness and propriety. Examples include:

• Conduct rule breaches that occurred more than six years ago but are part of an ongoing pattern
• Significant misconduct findings of any age
• Regulatory action against the individual at any age

Firms in scope

The regime applies between firms that are within SM&CR — meaning effectively all FCA-regulated firms above the Limited Scope tier. References between regulated firms and non-regulated firms (e.g., where a candidate moves from financial services to industry) are not within the SYSC 22 framework — though firms may still exchange references in non-regulated contexts.

What Must Be Disclosed

SYSC 22 sets out specific information that the previous firm must include in the reference. The mandatory disclosure items include:

Identity and role information

• The candidate’s identity and dates of employment
• The roles held (including SMF designations and certified status)
• The reason for leaving (typically resignation, dismissal, redundancy, mutual agreement, or retirement)

Conduct rule breach findings

• Any breaches of the FCA Conduct Rules that the firm has concluded occurred
• The nature and circumstances of each breach
• Any disciplinary or other action taken in response

For detail on the Conduct Rules themselves, see our Individual Conduct Rules Guide and Senior Manager Conduct Rules Guide.

Fitness and propriety concerns

• Any conclusions that the firm has reached that the individual is not fit and proper
• Withdrawal of SMF approval or certification
• Material concerns identified during the firm’s fit and proper assessments

Disciplinary action

• Disciplinary action taken on the basis of conduct affecting fit and proper status
• Action taken in respect of conduct rules breaches

Regulatory matters

• Action by the FCA, PRA, or international regulators against the individual
• Pending regulatory matters where the firm is aware

Settlement Agreements and Confidentiality Clauses

One of the most important features of the SYSC 22 regime is that settlement agreements and confidentiality clauses cannot prevent disclosure of the matters required by the regime. Specifically:

• Confidentiality clauses in settlement agreements that purport to prevent disclosure of conduct rule breaches are unenforceable to the extent of the SYSC 22 obligation
• Non-disparagement clauses cannot override the substantive disclosure obligation
• Firms cannot use settlement agreement terms to avoid the disclosure obligation

This has significant practical implications. Where firms enter settlement agreements with departing employees who have conduct issues, the agreement cannot mask those issues from subsequent regulatory references. Standard settlement agreement language used pre-SMCR has generally needed updating to acknowledge the SYSC 22 disclosure carve-out.

Findings vs Allegations vs Suspicions

The SYSC 22 regime requires disclosure of findings — specifically, conclusions that the firm has reached that a conduct rule breach has occurred or that the individual has fitness concerns. The regime distinguishes between:

This distinction matters substantively. A conduct allegation that was investigated and not substantiated is typically not disclosed, even where the underlying conduct was concerning. The substantive inputs are findings, not impressions.

Updating Past References

One of the more nuanced features of the regime is that previous firms have an obligation to update past references where new information emerges that materially affects the assessment. Specifically:

• Where a firm has issued a regulatory reference for a former employee, and subsequently identifies new information that would have affected the reference, the firm must consider providing an updated reference
• This applies even where the former employee has already moved to a new firm
• The obligation captures situations where conduct investigations conclude after the individual has left, where new evidence emerges, or where the firm reaches different conclusions on review

This creates an ongoing obligation that doesn’t end when the individual leaves the firm.

Operational Reality — Producing and Receiving References

Producing references

Strong reference production processes typically include:

• Centralised reference team (typically within HR or compliance) handling all SYSC 22 references
• Standard template aligned to SYSC 22 Annex 1
• Substantive coordination with relevant business areas before issuing references
• Senior management approval before issuing references containing adverse content
• Documented audit trail of the substantive matters considered
• Process for updating past references where new information emerges

Receiving references

Strong reference receipt processes typically include:

• Reference requests issued promptly after offer acceptance
• Clear timeline expectations communicated to the issuing firm (typically 2-4 weeks)
• Substantive review of received content rather than administrative filing
• Where adverse matters are disclosed, documented analysis of impact on fit and proper conclusion
• Senior management engagement where adverse matters affect the appointment decision
• Retention with appropriate access controls

Timing pressure during recruitment

The reference timeline can extend the recruitment process by 2-4 weeks beyond standard onboarding timelines. For SMF appointments where FCA approval also adds 12-16 weeks, the cumulative timeline from offer to start can reach 16-26 weeks. Hiring boards need to plan for this realistically.

When Adverse References Surface

One of the most operationally challenging scenarios in regulated firm recruitment is when adverse content surfaces in the reference after offer acceptance. Effective handling typically involves:

Substantive analysis

The receiving firm conducts substantive analysis of the disclosed matters — what happened, when, what context applies, whether mitigation is in place, whether the matters are relevant to the new role.

Candidate engagement

The candidate is given opportunity to respond to the disclosed matters, with their account documented alongside the reference content.

Senior management decision

A formal decision at appropriate seniority on whether the candidate remains fit and proper for the role despite the disclosed matters, with documented reasoning.

Documentation

The substantive analysis, candidate response, and decision are documented in the Fit & Proper file.

Outcomes

Outcomes range from proceeding with appointment (where the firm concludes the candidate remains fit and proper despite the matters), proceeding with conditions (additional supervision, training, or other risk mitigation), or withdrawing the offer (where the firm concludes the candidate is not fit and proper).

The Recruitment Implications

For candidates

The Regulatory References regime has fundamentally changed how candidates with adverse history navigate the recruitment process:

• Proactive disclosure — candidates with adverse history have a strong interest in disclosing at first interview rather than waiting for reference checking
• Context preparation — candidates should be prepared to provide substantive context for any disclosed matter
• Settlement agreement awareness — candidates should understand that settlement agreements cannot mask SYSC 22-relevant matters
• Narrative management — strong candidates manage adverse history through honest disclosure with context, not avoidance

For hiring firms

The regime has also changed how hiring firms approach senior recruitment:

• Reference checking is substantive — not administrative formality
• Adverse references are workable — where the substantive analysis supports it, candidates with adverse history can be successfully placed
• Documentation matters — the firm’s substantive analysis must be documented to defend the appointment if subsequently questioned
• Senior management engagement — substantive engagement with adverse matters at appropriate seniority

Common Regulatory Reference Pitfalls

Settlement agreements that try to suppress SYSC 22 disclosures. Standard non-disparagement language can conflict with the regime — legal review is necessary.

Templated references without substantive content. References that meet formal SYSC 22 requirements but don’t engage substantively with the candidate’s actual record.

Late reference requests. Reference requests issued late in the recruitment process create timing pressure that compromises substantive review.

Inadequate consideration of received references. Adverse content in references that’s filed without substantive consideration of impact on fit and proper conclusion.

No process for updating past references. Firms that don’t have a process for updating past references when new information emerges fail the ongoing obligation.

Inconsistent application across business units. Where different business units apply different reference standards, the firm’s framework integrity is compromised.

Senior management not engaged. Where adverse references are processed administratively without senior management engagement, the firm’s Fit & Proper governance fails.

Inadequate retention. References not retained for the full six-year period or not retrievable on FCA request.

Further Reading and Authoritative Sources

For the FCA’s authoritative guidance on Regulatory References, see SYSC 22. For the broader Fit & Proper framework, see the FIT module. For Conduct Rules, see COCON.

Related Guides: SMCR, Authorisation and Recruitment

Part of FD Capital’s series of practical guides for FCA-regulated firms: SMCR — Pillar Guide | The Senior Managers Regime | The Certification Regime | The FCA Fit & Proper Test | Individual Conduct Rules (Tier 1) | Senior Manager Conduct Rules (Tier 2) | How to Become FCA Authorised | The FCA Application Process & Costs | FCA Threshold Conditions | The Appointed Representative Regime