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PRA & FCA - Senior Managers Regime - Regulatory References

Response to the consultation

In general our members support the proposals that regulatory references detailing breaches of defined conduct standards should be sought and provided for those individuals taking on Senior Management Functions, Certified Functions or a role as a credit union NED.  References are an important and well-recognised tool for assessing the fitness and propriety of staff across all employment sectors and the proposed standardised model provides clear benefits in bolstering the Senior Managers Regime (SMR).

However, another key consideration is proportionality.  As with the wider SMR, credit unions were not part of the financial instability and conduct scandals which led to the need to bolster personal accountability in banking nor do they pose so significant a risk (either conduct or prudential) as to demand the same levels of scrutiny and accountability as executives and board directors in major UK banks.  As such, we are supportive of the simplified proportionate regime that has been designed in respect of SMR’s application to credit unions under £250 million in assets which has responded to concerns articulated by ABCUL in previous consultations.

A key common feature of credit union governance is that they tend to have volunteer boards of directors who serve on an entirely non-executive basis.  While this is not true in all cases, it remains the case in the vast majority of credit unions of all shapes and sizes and is rooted in the sector’s co-operative ownership structure.  As such, many ABCUL members have expressed concern at the potential implications of imposing these regulatory reference requirements upon volunteers.  This has the potential to create new barriers to volunteers joining a credit union board and in a context where securing the services of skilled volunteers for board roles is increasingly challenging, this may have significant negative consequences.  We therefore recommend that some guidance is provided to make clear that in the context of employing a volunteer, special consideration might be given to the challenges that obtaining references might present to the recruiting firm.  This might be the case, for instance, where a volunteer is retired or has not been employed in the last six years for some other reason.

In addition to this, we also have concerns that where a firm is recruiting from a non-financial / non-regulated firm, the firm from whence came the new employee / volunteer will be under no obligation to provide references to the new employer. Furthermore, they will not be familiar with the technical regulatory terminology around the FCA’s conduct rules, for instance, or the standardised reference format proposed.  To some extent are reassured by the fact that the guidance at SYSC 22.4 of the proposed draft rules makes clear that the regulators accept that where the previous employer is not a regulated firm this may not be possible and that as SYSC 22.2 the recruiting firm is required to make “reasonable efforts” only in pursuit of such references.  However, we would suggest that clarification is provided to make it clear that the reference credit unions must seek in these circumstances need not be in the standardised format proposed.  An ordinary reference, providing specific information about relevant conduct concerns, should suffice here.

More generally, we have some more minor concerns in respect of the costs of compliance with the regulatory reference requirements.  These may well be exacerbated by the fact that many credit union directors and others will not have former experience in regulated financial firms, due to the nature of credit unions, and therefore credit unions will disproportionately be required to seek references from firms to whom the request may be unfamiliar and not a regulatory requirement.  Furthermore, credit unions operate with limited resources and therefore may experience disproportionate costs of compliance as a result of development of the systems that will be needed.

We would be happy to provide any clarification or extra information that may be required.

To read the full response please download the PDF document on the right hand side