In the last couple of months, we have observed that the FCA have re-focused their efforts in encouraging regulated firms to ensure the right culture in their business. “Do the right thing” and “Cultural evolution: how culture must change” were the titles of 2 speeches, and that was just in June.
Apart from the standard, much repeated headlines about embedding a positive culture, senior management responsibility and putting customers first, there was a very practical reminder to the regulated community about the importance of a robust recruitment process.
The FCA ask firms to remember that preventing poor conduct and negative culture starts with the recruitment process, particularly by being aware of past misconduct of new recruits. It shouldn’t be easy for individuals with a history of poor conduct to move to new roles and become what the FCA refer to as “rolling bad apples.”
So, at a practical level, to protect your firm, your customers and your existing staff, make sure you are:
- following the regulatory reference process for, as a minimum, senior managers and staff performing certified functions for whom such references are mandatory. Remember that references must be sought for at least 6 years of employment;
- make your own assessment of an individual’s fitness i.e. don’t rely solely on the regulatory reference – be sure to follow up when adverse information is disclosed;
- undertaking your own complete and satisfactory background checks – it is common to include all staff, regardless of role. Don’t forget about background checking and seeking references for existing staff being promoted into senior management or certified roles;
- considering when it is appropriate to extend probationary periods and/or apply closer monitoring/supervision to an individual for a period of time; and
- not turning a blind eye to an individual’s poor conduct outside of work – there are now numerous cases where the FCA’s view was that someone’s personal conduct was so below expectation, that their employer should not have found them fit to work in regulated financial services. Finally, periodically re-run background checks and staff attestations.
The above is all straightforward enough but given the comparatively light regulatory change at the moment the FCA’s re-focus on the culture of regulated firms in recent months is noticeable and serves as a reminder to make sure the core elements of the compliance programme are functioning as they should.