March 10, 2016

Is your company prepared for the Senior Managers Regime?

With the introduction of the new Senior Managers Regime, financial firms will be legally required to assess a candidate’s ‘fitness and propriety’ to perform a Senior Management Function (SMF). Is your business prepared for these changes? And are you aware of the implications involved?


The Senior Managers Regime

In the aftermath of the banking crisis, UK financial regulators have introduced new legislation in order to ensure that Senior Managers are held accountable for any misconduct which falls within their areas of responsibility.

Senior Managers are defined as those who perform a Senior Management Function (SMF), and who have ‘key roles or overall responsibility, including the risk of serious consequences to the firm, business, or other interests from the UK’.

Under the new regime, those performing SMFs will be required to undergo pre-approval by regulators, and regular checks thereafter.

The new regime places serious emphasis on honesty and integrity, values which are reflected in the conduct rules published by the Financial Conduct Authority (FCA).

With these values in mind, firms will be legally required to assess a candidate’s ‘fitness and propriety’ for an SMF role before applying for approval, and then again annually.


Fitness and Propriety

When considering a candidate’s fitness and propriety, the FCA requires firms to examine three key areas. These are an individual’s:

•honesty (including openness with self-disclosures, integrity and reputation)

•competence and capability; and

•financial soundness

But what other factors should your company take into consideration?


1. Frequency and range of checks

The responsibility of deciding which current employees to re-screen, and how often to do so, lies with each individual firm. Each firm must assess the time and costs of re-screening every SMR employee annually, against the risks of not doing so.

Insufficient background checks leave your firm at risk of fraud, financial mismanagement and damaged reputation. With the introduction of the new regime, incomplete checks will also leave firms at risk of action by the FCA.

It is important to note that re-screening every SMR employee is the only way to ensure that your process is infallible. Re-screening a random sample of employees each year could lead to certain employees repeatedly ‘slipping through the net’, leaving you open to challenge by the FCA. Anyone not being re-screened in a particular year should self-certify.

One option to consider when determining your screening policy is whether or not to outsource the background checks. Experienced external providers can offer thorough SMR-compliant background checks performed by trained professionals. They can also provide swifter turnaround times which can relieve the extra pressure and demands on your time caused by the new regime.


2. International considerations

In certain countries, the new requirements are incompatible with local privacy laws. The FCA expects ‘best efforts’ to be made to ensure that thorough checks are carried out in international locations for those employees affected by the new regime.

Based on its existing domestic vetting policy, each firm must ascertain whether they can legally obtain the international equivalent of the UK checks in each relevant country. They must then consider the practicalities and costs of each international check, and form an international policy based on this.

International checks can be a costly and lengthy process, often requiring a large amount of research. Organisations would do well to engage with a provider who can determine and perform the appropriate international background checks.


3. Maintaining a positive candidate experience

The new regime will have a big impact on the recruitment process for the financial sector. It will no longer be acceptable for individuals to assume a Senior Management role before their screening is complete.

In order to speed up the process, recruiters should ensure that CVs are completely accurate. Employees also need to understand why they are being screened and that delays can be prevented by providing documentation quickly and disclosing any adverse information which could affect the outcome of their checks.


Core-Asset Verify

Core-Asset Verify can perform background checks correlating directly with each key area of the Fit and Proper test. These include:


Honesty, Integrity and Reputation

•Identity Verification
•Right to Work
•Criminal Background Check (UK)
•International Criminal Background Checks
•Employment History Verification
•CV Gap Analysis
•Online Media Checks
•Financial Services Registry search
•Directorship Search
•Compliance Database Check


Competence and capability

•Educational Qualification Verification
•Professional Qualification Verification


Financial soundness

•Financial Probity Check (UK)
•International Financial Checks
The new Senior Managers Regime will involve skilled and comprehensive pre-employment checks, adding another important consideration to what can already be an expensive and lengthy recruitment process.
Juliet Luxton

Client Relationship Associate

, Core-Asset Verify



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