Banks would have to get references going back six years when hiring new employees for senior roles under proposals from UK regulators aimed at stopping “bad apples” from switching jobs easily.
The proposals, published on Tuesday, follow recommendations by regulators aimed at improving behaviour in commodity, fixed income and currency markets after a number of major banks were fined billions of dollars for trying to rig foreign currency benchmarks.
In these recommendations, the deputy governor of the Bank of England, Minouche Shafik, said she wanted to make it harder for banking’s bad apples to cover their tracks by changing jobs.
The proposed requirements, which would also apply to senior hires at insurance companies, are part of a broader push by regulators to make financial staff more directly accountable for their actions.
The Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority proposed that from March next year banks and insurers should use a mandatory form when getting references on senior hires, including non-executive directors.
“In this consultation, we are proposing changes to the way firms seek and provide references for candidates of certain roles,” the FCA said.
A bank or insurance company would have to request references from former employers of candidates going back six years, a year longer than initially indicated, and the references should include any breaches of the FCA’s conduct rules.
“For too long dishonest or incompetent traders and advisers have drifted from firm to firm, protected from exposure through their ex-employer’s reluctance to state that they are either no good or not to be trusted,” said Simon Morris, a financial services partner at the law firm CMS.
When supplying references, banks will no longer be allowed to only provide the dates when the person worked for them.
“This may expose a firm giving a frank but damaging reference to the risk of litigation, but the regulators see this as a price worth paying to drive out the rotten apples,” Morris said.
The banks have been concerned that more detailed references without clear guidance from regulators could put them at risk of breaching data privacy rules.
Under the proposals, a bank must not enter into any arrangements that limit its ability to disclose relevant information.
Banks would also have to say whether candidates have been given a formal warning or had pay docked as part of disciplinary action. If the banks have no relevant information on the candidate they would have to say so and would not be allowed to leave parts of the form blank.
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“The regulators expect firms to exercise judgment, bearing in mind the importance of disclosing information relevant to the hiring firm alongside the need to be fair to former employees and comply with any relevant legal obligations,” the FCA said.
The watchdog said it would consider applying these requirements to all the firms it authorises in a separate consultation.
The regulators also published rules to introduce a standard procedure to protect whistleblowers at banks.
“For individuals to have the confidence to come forward, it is vital that firms have in place adequate policies on dealing with whistleblowers and that a senior manager takes responsibility for overseeing these policies,” said Tracey McDermott, the acting FCA chief executive.
“Mechanisms within firms to encourage people to voice concerns by, for example, offering confidentiality to those speaking up, can provide comfort to whistleblowers,” McDermott said
(Published the guardian, October 8 2015)
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