Regulatory References: The Six-Year Rule Explained

Welcome to SMF Unlocked, the podcast from SMF Capital.

Today we are looking at an issue that can become particularly important when recruiting senior people into regulated financial services: regulatory references and the FCA's six-year rule.

For an individual applying for an SMF, taking on a certification function or moving into another regulated senior position, references are not simply a standard HR formality.

The regulatory reference process can provide important information about a person's previous roles, conduct, fitness and propriety.

And for employers, understanding the six-year rule is essential.

So, what exactly does it mean?

What Is the Six-Year Rule?

The FCA's regulatory reference requirements are contained in SYSC 22 of the FCA Handbook.

The rules apply to SMCR firms and require firms considering appointing someone to certain regulated positions to take reasonable steps to obtain appropriate references from their current employer and previous employers within the preceding six years.

That means the reference process can go considerably further back than the candidate's most recent employer.

If someone has changed employers several times during the previous six years, the recruiting firm may need to obtain references covering those employers.

This is one reason why candidates should keep an accurate record of their employment history.

A gap or an overlooked previous employer can potentially complicate the reference process.

Why Does the FCA Require Regulatory References?

The purpose is fundamentally about fitness and propriety.

When a regulated firm appoints someone to an SMF or another relevant position, it needs to have sufficient information to assess whether that person is appropriate for the role.

A CV tells you where someone worked and what positions they held.

That makes the reference an important part of the wider assessment process.

Six Years Does Not Mean Everything Older Is Irrelevant

There is an important distinction here.

The six-year period is not necessarily a simple rule saying:

"Anything more than six years old can never matter."

The FCA rules contain an important exception for serious misconduct

This is an important point for candidates.

A historic issue does not automatically disappear simply because six years have passed.

What Does a Regulatory Reference Actually Cover?

This is why regulatory references can sometimes feel very different from an ordinary employment reference.

A conventional reference might simply confirm:

• employment dates;
• job title;
• salary; and
• perhaps a brief description of responsibilities.

A regulatory reference is concerned with information that may be relevant to the individual's suitability for regulated responsibilities.

That is particularly important when the proposed appointment involves significant senior management accountability.

What If a Candidate Has a Difficult Reference?

Instead, the recruiting firm needs to understand the circumstances and assess the information appropriately.

This is where a transparent recruitment process becomes valuable.

Trying to hide an issue can potentially create a much bigger problem than the original issue itself.

Candidates should be prepared to explain relevant matters accurately and consistently.

The recruiting firm should also consider the evidence, context, seriousness, relevance and subsequent history rather than simply reacting to a single sentence in a reference.

Regulatory References Must Be Fair and Accurate

There is also an important responsibility on the firm providing the reference.

The FCA guidance states that references should be true, accurate, fair and based on documented fact. It also recognises that firms may provide frank and honest views, provided reasonable care is taken over factual content and opinions.

This matters because regulatory references can have a significant impact on someone's career.

A former employer cannot simply use the reference process to make unsupported allegations or provide misleading information.

There needs to be a proper basis for what is disclosed.

The FCA also notes that firms have duties under general law when preparing references, including a duty to exercise due skill and care.

What If the Previous Employer Has No Complete Records?

Another practical issue is that employment records may not always go back for the entire period required.

A business may have changed systems.

Records may have been transferred.

A previous employer may have merged with another organisation.

Or the candidate may have worked for an overseas business.

The FCA rules recognise that firms may not have records covering the maximum periods contemplated by the regulatory reference requirements.

Where appropriate, the firm should explain that limitation rather than simply pretending the information does not exist.

This is another reason for candidates to provide accurate information about their employment history at the outset.

The Rule Also Matters to Employers

The six-year rule is not just something candidates need to understand.

It matters to recruiting firms too.

If a regulated business is considering appointing someone to an FCA controlled function, the reference process needs to be incorporated into the overall appointment timetable.

The FCA rules specify when references should be obtained, including in relation to applications for controlled functions.

That means recruitment teams should not leave regulatory references until the last minute.

An apparently straightforward senior appointment can become delayed if an old employer cannot immediately provide the required information.

Planning ahead can make the process considerably smoother.

Regulatory References and SMF Recruitment

This is one reason why recruiting an SMF is different from ordinary executive recruitment.

A successful appointment involves more than identifying someone with the right experience.

The firm needs to consider:

Does the candidate have the right technical background?

Do they have the appropriate seniority?

Does their experience match the firm's responsibilities?

Can they demonstrate the necessary competence and judgement?

What does their regulatory history look like?

Are the necessary references available?

And ultimately:

Is the firm comfortable that the individual is fit and proper for the proposed role?

The reference process forms part of that wider assessment.

Candidates Should Prepare Early

If you are a senior financial services professional considering an SMF appointment, there are several sensible steps you can take.

Keep an accurate record of your employment history.

Make sure you know which organisations employed you during the previous six years.

Understand the regulatory functions you have previously performed.

Keep copies of relevant employment and regulatory documentation where appropriate.

And if there has been a significant disciplinary, regulatory or conduct issue in your career, make sure you understand exactly what happened and how it was resolved.

Being prepared does not mean assuming there will be a problem.

It simply means avoiding unnecessary surprises later in the process.

SMF Capital's Candidate Perspective

At SMF Capital, the recruitment process is focused on senior appointments within regulated businesses.

That means understanding the candidate's career history is an important part of identifying an appropriate match.

If you are a senior financial services professional considering your next move, the SMF Capital Candidates service provides a route to engage with specialist recruitment focused on Senior Management Functions and regulated leadership positions.

The objective is not simply to match a CV with a job description.

It is about understanding the candidate's experience, regulatory background, leadership responsibilities and the type of regulated environment in which they are likely to be most effective.

You can find out more through the SMF Capital Candidates page.

Final Thoughts

The FCA's six-year regulatory reference rule is easy to misunderstand.

It does not simply mean that every detail of someone's career is examined indefinitely.

Nor does it mean that everything disappears after six years.

Instead, the framework provides a structured period for obtaining relevant employment and regulatory information, while recognising that serious misconduct may require consideration beyond that period.

For employers, the lesson is to build regulatory references into the recruitment and approval timetable.

For candidates, the lesson is preparation and transparency.

And for both sides, the ultimate objective is the same:

making sure the person appointed to a regulated position is genuinely suitable for the responsibilities they are being asked to undertake.

If you are a senior professional considering your next regulated appointment, or a firm looking to recruit an SMF, listen to more episodes of SMF Unlocked and explore the specialist services available from SMF Capital.

You can also visit the SMF Capital Candidates page to find out more about opportunities and specialist support for senior professionals in regulated financial services.

Thank you for listening to SMF Unlock