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SYSC 22.5 Giving references: additional rules and guidance for all firms

Verification

SYSC 22.5.1R

1This chapter does not require a firm to disclose information that has not been properly verified.

SYSC 22.5.2G
  1. (1)

    For example, this chapter does not necessarily require a firm to include in a reference the fact that an ex-employee left while disciplinary proceedings were pending or had started. Including such information is likely to imply that there is cause for concern about the ex-employee but the firm may not have established that the ex-employee was actually responsible for misconduct.

  2. (2)

    However, a firm may include such information in a reference if it wishes to (see SYSC 22.3.5G).

Accuracy

SYSC 22.5.3G

A firm should, when giving a reference under this chapter, provide as complete a picture of an employee’s conduct record as possible to new employers.

Fairness

SYSC 22.5.4G
  1. (1)

    A firm supplying a reference in accordance with this chapter owes a duty under the general law to its former employee and the recipient firm to exercise due skill and care in the preparation of the reference.

  2. (2)

    The firm may give frank and honest views, but only after taking reasonable care both as to factual content, and as to the opinions expressed.

  3. (3)

    References should be true, accurate, fair and based on documented fact.

SYSC 22.5.5G
  1. (1)

    An example of the general duty described in SYSC 22.5.4G is that fairness will normally require a firm to have given an employee an opportunity to comment on information in a reference. The firm might do this through, for example, disciplinary proceedings.

  2. (2)

    Paragraph (1) does not mean that the firm should provide an opportunity to comment on the reference itself, as opposed to the allegations on which it is based.

  3. (3)

    A firm may have given the employee an opportunity to comment on allegations that are later included in a reference even though, at the time that the firm is giving that opportunity, no reference is being contemplated. That may mean that the firm gives the employee their opportunity to comment on the allegations some time before the reference is prepared.

  4. (4)

    Paragraph (1) does not mean that a firm will be unable to include an allegation in a reference if it has offered the employee an opportunity to comment on the allegation but the employee has unreasonably refused to do so.

  5. (5)

    Where a firm should have given an employee an opportunity to comment on an allegation if the allegation is to be included in a reference, this chapter requires the firm to give the employee that opportunity rather than merely to leave the allegation out of the reference.

  6. (6)

    Paragraph (5) may mean that where the firm has not given its employee an opportunity to comment on a matter at the time it first arose, it will have to give the employee the opportunity around the time that the firm is preparing the reference.

  7. (7)

    The obligation to give an employee an opportunity to comment does not mean that there is a wider duty to investigate whether there are facts that show that there has been a conduct breach (see SYSC 22.5.18G).

  8. (8)

    This chapter does not require the employee’s views to be included in the reference. Instead the firm should take those views into account so far as appropriate when deciding whether something should be disclosed and how the disclosure is drafted.

Outsourcing

SYSC 22.5.6G

The requirements in this chapter for a firm (B) to give a firm (A) a reference also apply where A has outsourced the collection of that information to another (unregulated) third party, where B has been made aware that the unregulated third party is acting on behalf of A.

Circumstances in which the ex-employee left

SYSC 22.5.7G

The obligation to give a reference for an employee or ex-employee applies however the employment ended or is going to end. For example, it applies whether it ended through resignation, redundancy, dismissal or fixed term work, a secondment or temporary work coming to an end.

Missing or incomplete information

SYSC 22.5.8G
  1. (1)

    If a firm’s records do not cover the maximum periods contemplated by SYSC 22.2.2R or SYSC 22 Annex 1R (Template for regulatory references given by relevant authorised persons and disclosure requirements), the firm should note that in the reference.

  2. (2)

    A firm should not include a warning of the type described in (1) as a matter of routine. It should only be included if there is a genuine need to include it.

All relevant information: Calculation of six year period for disclosure

SYSC 22.5.9G
  1. (1)

    In general there is a six year limit on what should be disclosed under SYSC 22.2.2R(1) to (3).

  2. (2)

    Where the matter to be disclosed consists of a single course of conduct (such as market manipulation) the six year period does not begin until that course of conduct has come to an end. This means that individual events that occurred more than six years ago may still be within the six year limit.

  3. (3)

    This guidance is also relevant to the six year time limits for updating references in SYSC 22.2.6R.

All relevant information: Removal of six year period

SYSC 22.5.10G
  1. (1)

    SYSC 22.2.2R(1) to (3) normally has a six year time limit. SYSC 22.2.2R(3)(c) removes that time limit for serious matters. This paragraph (SYSC 22.5.10G) and SYSC 22.5.11G have guidance about this. This guidance is also relevant to the time limits for updating references in SYSC 22.2.6R.

  2. (2)

    The removal of the time limit does not mean that the time that has elapsed since the matter occurred is irrelevant. The length of time that has elapsed is relevant to deciding whether the matter is serious. In general, the longer ago the matter occurred, the less likely it is still to be serious for these purposes.

  3. (3)

    In determining whether something is serious for these purposes, the key question is how important the information still is for the requesting firm’s assessment of the employee’s fitness for the function that they are going to perform.

  4. (4)

    In considering what is relevant, a firm should, in particular, have regard to SYSC 22.5.4G (Fairness).

  5. (5)

    The table in SYSC 22.5.11G provides guidance on some of the factors which a firm should take into account when determining whether a matter is serious.

  6. (6)

    The guidance in this paragraph and in the table in SYSC 22.5.11G is only designed for the purposes of this chapter. It does not, for example, apply for the purposes of SUP 15 (Notifications to the FCA), DEPP or EG.

SYSC 22.5.11G

Table: Examples of factors to take into account when deciding whether old misconduct is sufficiently serious to disclose

Factors to take into account

Comments

(A) Whether P has committed a serious breach of individual conduct requirements.

Individual conduct requirements has the same meaning as in Part Two of SYSC 22 Annex 1R (Template for regulatory references given by relevant authorised persons and disclosure requirements).

Factors to take into account in deciding whether the breach is serious include the following.

(1) The extent to which the conduct was deliberate or reckless.

(2) The extent to which the conduct was dishonest.

(3) Whether the breaches are frequent or whether they have continued over a long period of time. The fact that breaches were frequent or repeated may increase the likelihood that they should be disclosed since the breaches may show a pattern of non-compliance.

(4) The extent of loss, or risk of loss, caused to existing, past or potential investors, depositors, policyholders or other counterparties or customers.

(5) The reasons for the breach. For example, where the breach was caused by lack of experience which has been remedied by training or further experience, it is less likely that the breach will still be relevant.

(B) Whether the conduct caused B to breach requirements of the regulatory system or P was concerned in a contravention of such a requirement by B and, in each case, whether P’s conduct was itself serious.

(1) The factors in (A) are relevant to whether P’s conduct was serious.

(2) The seriousness of the breach by B is relevant. The factors in (A) are also relevant to this.

(3) A breach by B of certain requirements is always likely to be serious under (2). Breach of the threshold conditions is an example. However that does not mean that P’s involvement will automatically be serious.

(C) Whether P’s conduct involved dishonesty (whether or not also involving a criminal act).

Dishonesty is an important factor but it is not automatically decisive in every case. For instance, a small one-off case of dishonesty many years ago may not be sufficiently serious to require disclosure.

(D) Whether the conduct would have resulted in B’s dismissing P, had P still been working for B, based on B's disciplinary policies and the requirements of the law about unfair dismissal.

(E) Whether the conduct was such that, if B was considering P for a role today and became aware of the historical conduct, B would not employ P today notwithstanding the time that has passed.

Note 1: P refers to the employee about whom the reference is being written.

Note 2: B refers to the firm giving the reference.

Breach of APER

SYSC 22.5.12G
  1. (1)

    An example of information that may be relevant under SYSC 22.2.2R(1) to (3) is the fact that the employee has breached a requirement in APER.

  2. (2)

    This means that any firm (not just one that is a full scope regulatory reference firm) should consider whether it needs to disclose a breach of APER when giving a reference under this chapter.

Agreements not to disclose information

SYSC 22.5.13R

A firm must not enter into any arrangements or agreements with any person that limit its ability to disclose information under this chapter.

SYSC 22.5.14G

SYSC 22.5.13R covers all types of agreements and arrangements. For example:

  1. (1)

    it is not limited to an agreement or arrangement entered into when the employee leaves;

  2. (2)

    it applies however the employment ends (see SYSC 22.5.7G); and

  3. (3)

    it covers a “COT 3” Agreement settled by the Advisory, Conciliation and Arbitration Service (ACAS).

SYSC 22.5.15G

A firm should not give any undertakings to supress or omit relevant information in order to secure a negotiated release.

SYSC 22.5.16G

The obligation to supply information to another firm under this chapter will apply notwithstanding any agreement prohibited by SYSC 22.5.13R.

Time in which to respond to reference requests

SYSC 22.5.17G

The FCA expects that normally a firm should issue a reference under this chapter within six weeks of being asked to.

Duty to investigate allegations

SYSC 22.5.18G
  1. (1)

    A firm should, wherever feasible, conclude investigative procedures before the employee departs.

  2. (2)

    However, this chapter does not create a duty to investigate alleged misconduct by an employee or former employee.

  3. (3)

    There are several reasons why a firm may find it appropriate to investigate potential misconduct by an employee or former employee, including:

    1. (a)

      assessing the actual and potential damage resulting from misconduct;

    2. (b)

      identifying other individuals potentially culpable or accountable for the breach;

    3. (c)

      satisfying itself that the SMF manager responsible for the areas where the misconduct occurred took reasonable steps to prevent or stop it; and

    4. (d)

      (where the employee has remuneration susceptible to malus or clawback) enabling it to consider whether any adjustments are justified.

Criminal record checks

SYSC 22.5.19G

A firm giving a reference need not include information from a criminal records check it has carried out under Part V of the Police Act 1997 (Certificates of Criminal records, etc). The recruiting firm should carry out a criminal records check itself if necessary. SUP 10C.10.16R requires a relevant authorised person to carry out such a check when appointing an SMF manager.