Reputation Issues in Financial Services
The Financial Conduct Authority (“FCA”) is the regulator for financial services firms and individuals that work in them and has wide-ranging powers to investigate and take enforcement action or bring criminal prosecutions against persons and firms regulated by them. There are also powers over persons not regulated by them that breach such as Section 21 of the Financial Services and Markets Act 2000 (FSMA) which governs the marketing of investment schemes and products.
Enforcement action can occur at any time the FCA considers it necessary.
The FCA can impose the following sanctions:
- Publish a statement against a number of people
- Impose a financial penalty
- impose a suspension, limitation or other restriction
- impose a suspension, condition or limitation on an approved person under section 66 of the Act
- impose a disciplinary prohibition on an individual under section 123A of the Act
Depending on whether you are regulated by the FCA, different rules apply regarding whether you need to disclose cautions and/or convictions depending on your role in financial services.
The FCA has an exemption that permits the disclosure of information regarding both spent and unspent convictions in respect of individuals requiring regulator approval, provided that the individual is informed at the time of the request that, by virtue of the Rehabilitation Order, spent convictions are to be disclosed. However, the number of roles requiring regulator approval under the FCA’s Senior Managers and Certification Regime (SMCR) has been reduced considerably in comparison with the previous approved person regime position under the APR, as set out further below. This has caused concern that the assessment of fitness and propriety is curtailed for a class of individuals who pose potential risk, given the nature of the roles they undertake.
Criminal record checks under SMCR
Senior Managers
Before firms seek FCA approval for a person to carry out a senior manager function (e.g., the chief executive officer, director, partner, compliance oversight, or money laundering reporting functions), they must obtain the fullest information that they are lawfully able to obtain about a candidate under Part V of the Police Act 1997 (Certificates of Criminal Records) and related subordinated UK legislation.
Again, as the FCA has an exemption under the Rehabilitation Order that permits the disclosure of information regarding both spent and unspent convictions for individuals requiring approval, firms are permitted to carry out standard criminal record checks on senior managers under the SMCR (again, provided that the individual is informed at the time the question is asked that, by virtue of the Rehabilitation Order, spent convictions are to be disclosed).
Certified persons
However, under the SMCR, firms cannot carry out criminal record checks regarding spent convictions for “certified persons”. Certified persons are not approved by the FCA but are certified annually by their firm as “fit and proper” to perform their roles. Therefore, firms cannot benefit from the exemption for persons requiring FCA approval under the Rehabilitation Order.
Certified persons are not senior managers but are individuals who could cause significant harm to the firm or customers. They can include, for example, team managers, dealers, traders, investment decision-makers, and customer advisers.
If you are being investigated by the FCA or are seeking advice on whether you are legally required to disclose a caution or conviction to your employer, contact our regulatory team on 0207 632 4300 and we would be happy to discuss your matter with you.