introduction

The 9th December 2019 should be a date in your calendar if you are regulated by the FCA. From that date, the Senior Managers & Certification Regime (SMCR) will apply to ALL FCA authorised firms under the Financial Services & Markets Act (FSMA).

The SMCR currently applies to all UK-incorporated banks, building societies, credit unions, and prudential regulation authority-regulated investment banks and insurers. From 9 December 2019, it will be expanded to cover companies that are currently regulated by the FCA, affecting an estimated 50,000 firms.

The headline for the background checking industry is that SMCR puts an expectation that companies will take appropriate steps to satisfy themselves that individuals and employees are ‘fit and proper to perform critical roles within the business, specifically:

  • the information they provide in applications for senior management functions is accurate and truthful;
  • the screening of of certified persons adequately meets their obligations to self-regulate

As part of our ‘7 things’ series of whitepapers we are looking at the more specific requirements over and above your typical background checking process:

1. are they fit and proper

As part of the onboarding process for any employee that will perform “critical roles” in addition to the background checks its important to ask a series of questions that relate to information that may not be disclosed as part of the checks but is still very relevant. Such as disclosing current proceedings against them. It's not a great candidate experience if these questions are yet another form sent to the candidate so it’s preferable to include them in the screening application process, also by doing it that way you have a single compliance report at the end of the screening.

2. references are all the same

Under SMCR this couldn’t be further from the truth. Referencing becomes more complex, for many roles in your company that does not come under SMCR then yes, normal reference requests continue to be the standard you should use but for those roles that fall under SMCR, the FCA set the questions that should be asked (outlined in SYSC 22 of the FCA Handbook). Then just to add further complexity, what if one of the roles they have undertaken in the previous 6 years wasn’t a regulated role then a different template again should be used, so for one person, there could be a requirement for multiple different references templates depending on previous employment.

3. all around the world

You also need to consider international criminal records and credit checks. Where a candidate has lived or worked outside the UK, the FCA recommends companies should undertake appropriate checks in those oversea locations, to ensure they can make a good determination as to the individual’s fitness and propriety.

4. additional due diligence

To ensure a robust process you may want to go slightly beyond the screening requirements mandated by the FCA. A small number of additional checks should be considered. HR managers should consider the fit and proper criteria of the FCA handbook which asks that individuals who will be appointed to perform specific roles are considered appropriate about, honesty, integrity, and reputation, competence and capability, financial soundness.

5. proof of compliance

Carrying out all of the necessary checks and due diligence is great. The next step is to show evidence that they have all been carried out in a timely and proper manner. That’s where your screening pack comes in, having a single document that includes all of the results and relevant information makes proving your compliance quick, easy, and demonstrates your commitment.

7. once we have onboarded the starter that’s it

Not anymore it’s not, its always been best practice to re-screen existing staff but now SMCR makes that a requirement. Continuous screening is required for companies to comply with the SMCR. The FCA expects that companies will continually revisit the fitness and propriety of their key appointments and, in the case of certified persons, the company must provide them with certification on an annual basis to demonstrate their continued suitability to perform their role. What this ongoing assessment comprises.