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Employee screening requirements for the Financial Services industry

Employee screening requirements for the Financial Services industry

Regulating over 50,000 financial services providers, investment firms and consumer credit firms, the Financial Conduct Authority (FCA) is the essential UK body granting a badge of legitimacy to players in the UK financial services industry. Keeping financial markets honest and effective, they ensure fair outcomes for customers, keep the industry stable, and promote healthy competition between financial service providers.

Working alongside the FCA, the separate body of the Prudential Regulation Authority (PRA) watch over around 1,500 firms and aim to “promote the safety and soundness of firms” by creating policies for firms to follow. Their objective is to ensure that the financial services and products that we all rely on can be provided in a safe way and that the UK financial system remains stable.

It's up to the FCA and the PRA to monitor and uphold standards and security within the UK financial services industry, and they have therefore created a strict set of requirements for employees within the industry. At Reed Screening we have extensive expertise in the requirements and screening processes set by the FCA and PRA, particularly under the Senior Managers & Certification Regime (SMCR), and are here to help!

Here's what you need to know about how the FCA and PRA keep your business safe through screening.

Approved persons & controlled functions

In order to keep your business going effectively and fairly, the FCA requires any firm that carries out what’s called a ‘controlled function’ (an activity that the FCA needs to regulate) to nominate a trustworthy appointed representative. That employee is called an ‘approved person’ and they must go through a thorough background check and assessment with the FCA before they can hold this position. Firms regulated by the Prudential Regulation Authority (PRA) require anyone in a senior management position to be assessed and approved too, but we will cover that next.

The ”Fit and Proper Test”

The FCA state on their website that organisations must be satisfied that the individual they’re putting forward is fit and proper, which means it’s important that you run your own checks before putting in an application with the FCA. This is because any employee who will be carrying out a controlled function will need to take the ‘fit and proper’ test, which is a benchmark by which the candidate is assessed to determine whether or not they are a good person to do the job. It takes into account the candidate’s honesty, integrity and reputation; competence and capability; and financial soundness.

Criminal convictions

The test includes looking at criminal convictions, considering the seriousness of the crime, how relevant it is to the job, and the time and rehabilitation since the crime was committed. Crimes that are particularly relevant include anything that relates to financial services, such as fraud, dishonesty and financial crime, or an offence under legislation relating to banks, building societies, credit unions and other services, whether in the UK or not.

Reputation

The FCA’s fit and proper test also looks at the individual’s reputation and how that might impact their responsibilities and your organisation, as well as their employment history. For example, has the individual been involved with an organisation that has been refused or expelled from a membership, license, or government body in the past, or have they been in a senior role in an organisation that has gone into administration while they were there? They will also look at whether the person has ever been under investigation, faced any disciplinary action or been the subject of a justified complaint relating to regulated activities.

It's important to note that poor reputational links or criminal convictions declared and found don’t necessarily mean that the individual won’t be approved – they will look at the circumstances surrounding the concern and might issue a ‘Warning Notice’ to give the opportunity for discussion before they make their final decision.

Senior Management Functions (SMFs)

As we mentioned, to make sure that organisations are governed effectively and able to deal with customers fairly, it’s important that your firm is run only by the most trustworthy people, with a high level of skill, capability and honesty.

The FCA takes a ‘risk-based’ approach to approving individuals responsible for SMFs, which means that they consider the impact that the role and candidate have on the organisation. So, although approval comes from the PRA, they can only grant this with permission from the FCA – without it, they have to refuse an application.

The application

With SMFs, as well as background checks on the individual, organisational practices and processes are key. The application will ask for evidence relating to the candidate and their job, including their CV, job role, criminal records and regulatory references. They will also ask for evidence relating to the organisation, including management responsibility maps, handover procedures, recruitment practices, board biographies and learning and development plans.

FCA interview

Depending on the risk involved, the FCA might also need to interview candidates applying for SMF roles. As a general rule, interviews are reserved for those at CEO or director level with responsibility for finance, CASS, compliance and risk, however if the FCA has concerns about the individual or about the firm, they can choose to interview anyone.

At interview, the candidate is expected to fully understand their regulatory responsibilities and have awareness of their organisation’s strategy, risk management, governance and the market in which they operate. This means it’s important you only put forward the people who you are sure know their stuff.

Non-Regulated staff

Even those employees with roles that don’t need to be regulated by the organisation still need to follow the FCA’s ‘Conduct Rules’:

  1. You must act with integrity
  2. You must act with due care, skill and diligence
  3. You must pay due regard to the interests of customers and treat them fairly
  4. You must observe proper standards of market conduct

These rules set the expectations of how the industry should operate and ensure that everyone in a regulated firm is held to account. This means that it’s just as important that non-regulated roles go through robust and comprehensive checks too, even if they don’t require FCA approval.

Financial Services & Insurance screening

At Reed Screening, we provide screening packages designed specifically for the needs of the financial services and insurance industry. Our packages are pre-tailored to mitigate the risk when hiring for popular roles such as hospitality and facilities staff, call centre roles, or directors, regulated roles, brokers, accountants, and mortgage advisors. We cover everything from permanent hires and fixed term contractors, to temporary/agency supply chain.

Our checks include right to work, employment history and referencing, criminal records, credit, qualifications, directorship, sanctions and more. We offer checks on a pay as you go basis as well as preferential managed service rates – find out more about our financial services and insurance checks here and contact us to find out how we can help you.

For more information on the FCA and approval of regulated roles, visit their website.