Insurers hiring and employing certified staff under the SMCR - are your processes fit for purpose?

September 11, 2019

With insurers focussed on getting processes in place for certifying relevant staff and developing systems to manage the regulatory referencing regime, it can be easy to overlook (because the FCA doesn’t expressly require contracts to be amended) that the terms on which you currently employ staff may not be fit for purpose for the new regime. Nor may your recruitment process for certified employees be robust enough to ensure that you make appropriate judgements about who you hire into such roles.

Until now it has been the case that provided someone did well in the interview, you couldn’t find anything negative on a google search, and you had the go ahead from the FCA you could employ them into a controlled function without the firm troubling itself too much about their regulatory history. Now the burden of deciding whether someone is fit and proper to perform a certified role falls on you the employer and that means making significant changes to your hiring process. It also means that you need to ensure that your offer letters and contracts don’t give rise to unintended financial liabilities and give you adequate protection where regulatory misdemeanours occur.

Below are the key things that all insurers will need to think about when hiring and employing certified staff.

Hiring

It’s much easier to make a judgement about an existing staff members’s fitness and propriety than it is for a new hire who you’ve never met before. Don’t forget you have to consider the three limbs of the fit and proper test for any candidate: their honesty, integrity and reputation; their competence and capability; and their financial soundness.

You will need to carry out appropriate due diligence to satisfy yourself that in each of these categories the candidate meets required standards. You need to consider what’s required and who will manage the due diligence process so all relevant data is available when the decision to certify is made.
New hires should be asked to self-certify that there is nothing that they are aware of that might impact on the assessment of their fitness and propriety. Other evidence might include:

  • How they have answered questions at the interview?
  • How they have dealt with any pre-employment test?
  • What do the regulatory references say?
  • For the assessment of honesty and integrity, consider checking their record with their professional body, conduct DBS checks, overseas criminal record checks, Ministry of Justice or Court and Tribunal judiciary and sanctions checks
  • For reputation, social media checks could be a good source of information
  • For competence and capability, obtain evidence of qualifications and their self-declaration that they are capable of performing the role
  • On financial soundness you’ll need to carry out appropriate checks with credit reference agencies

You will also need to ensure that the person making the assessment of fitness and propriety is qualified to do so – they must themselves be certified or a Senior Manager - and that they properly record the basis on which the decision to certify has been made. As a minimum, employers will need an appropriate form and insist that it is completed properly for each hire. The assessor is likely to be in breach of Conduct Rule 2 if not.

Where there are concerns about what is on a regulatory reference, think about how your recruitment process will deal with this and who reviews decision making. Remember the SMCR is not a zero tolerance regime, so one-off minor breaches of Conduct Rules where there has been a failure to exercise due skill care and diligence should not in most cases bar the person from employment. Again, you need to insist that the basis of the decision made is recorded in case of future challenge or scrutiny.

Employment contracts

You may well already have references to regulatory compliance within existing contracts, but have you got the following?

  • Conditions that an individual has got clean pre employment checks etc. to ensure no contractual obligations arise if they don’t.
  • A requirement that the employee must continue to be fit and proper to perform the role they’ve been appointed to and satisfactorily completes other compliance checks as may be required from time to time. Again, if these conditions are not met you have a contractual right to discontinue the employment relationship with immediate effect without payment of notice.
  • Express employee duties which reflect the requirements of the new regime. For example, making it clear that employees must carry out their duties with due care skill and diligence and that they maintain the high standards of personal, professional conduct including maintaining honesty and integrity.
  • A requirement to comply at all times with the FCA’s code of conduct and to be open and cooperative with the FCA, PRA and other regulators, paying due regard to the interests of customers, treating them fairly and observing proper standards in market conduct? Including these in the contract will make it easier to justify disciplinary action including dismissal if the employee falls short.
  • Termination clauses which make it clear that breaches of the FCA’s conduct rules may lead to immediate termination without notice of payment in lieu notice as would a conclusion that the person is no longer fit and proper to perform their role? Or that disciplinary or investigative action by the FCA, PRA or other regulatory authorities might justify dismissal with immediate effect?
  • An express right to suspend an employee under investigation by a regulator or the business stating clearly what the terms of the suspension are, including concerning possible duration?

All the above will ensure that you are in the very best position where things go wrong to both take swift and decisive action and satisfy your regulators that you have made clear to your employee what standards they are expected to achieve.


Related pages:

Financial Services more

Senior Insurance Managers Regime more

Senior Managers & Certification Regime more

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