In late 2018, the remit of the Senior Managers and Certification Regime
(SM&CR) was extended to cover insurers. This saw insurance brokers and intermediaries transitioning away from the Prudential Regulation Authority’s Senior Insurance Managers Regime and the Financial Conduct Authority’s (FCA) Approved Persons Regime, which had previously driven their employee screening activities.
In line with other businesses across the financial services sector, it is the SM&CR that now guides insurers on the regular ‘fit and proper’ checks that they are required to undertake for employees performing regulated roles. Such checks are expected to consider an individual’s honesty, integrity and reputation; their competence and capability within their role; and their financial soundness.
This move has also led to a shift in the balance of responsibilities between regulators and firms. Previously, the regulators were responsible for approving anyone involved in regulated activity. Now however, they are focusing their resources solely on individuals designated as Senior Managers or “material risk-takers”.
For the other Certified Persons within a firm (previously known as Approved Persons), responsibility now falls on the firms themselves, meaning they will be expected to certify an individual’s fitness and propriety for performing a role. After their initial certification, employers must continue to monitor whether their certified employees remain fit and proper, undertaking at least one review per year to determine whether the FCA would have any grounds for withdrawing an employee’s certification. Employers will therefore become a de facto
regulator, tasked with ensuring the appropriateness of their own regulated workforce.
Insurance distributors also need to be aware of the Insurance Distribution Directive
(IDD), a relatively new European directive designed to provide consistent standards of conduct across the industry. In a similar vein to the SM&CR, this requires that all staff involved in the distribution of insurance be of good repute and with appropriate knowledge and ability. With the definition of insurance distribution extending to work undertaken on preparing or administering insurance contracts, law firms involved in this area will also be subject to this directive.
Returning to the subject of fit and proper checks, full details of the employers’ regulatory requirements can be found in the FCA’s ‘Fit and Proper
’ sourcebook. It covers the requirements for recruiting new staff and for the ongoing assessment of the fitness and propriety of approved Senior Managers and all staff employed in Certification Regime functions.
The sanctions for non-compliance include publicly censuring a firm or imposing a financial penalty. The intention in both cases is to promote high standards of market conduct, to deter individuals from breaching the regulations and to demonstrate the benefits of compliant behaviour.
In terms of other checks employers may consider running, a search of the Cifas Internal Fraud database is often cited as a best practice check. Although only available to members of Cifas, this allows employers to check whether an individual’s name appears on this database of people known to have been involved with internal fraud in the past.
Also, the FCA’s “Guidance on financial crime systems and control
”, released in December 2018, highlighted annual open source internet searches (more commonly known as social media screening) on all staff as an example of good practice for ensuring ongoing compliance with regards to fitness and propriety and risk mitigation.
And finally, as with many sectors, we’re seeing firms are moving away from accepting copies of candidate documentation as proof of address and identity for screening purposes. Instead, they’re opting for more reliable and insightful electronic data checks and identity validation solutions.
Checks that employers may want to consider running in this sector
Identity checks:To prevent employers falling victim to identity fraud, we can undertake electronic verification checks on identity documents provided by a candidate. Alternatively, we can provide online identity checks, using biographical data.
Right to Work: We’ll ensure that a candidate’s documentation meets the current Home Office requirements. We can also repeat checks as and when needed for individuals who have a limited entitlement to remain in the UK.
Criminal record checks: We’ll undertake the appropriate level of UK criminal record checks, subject to strict eligibility guidelines (Standard for senior management and controlled functions; Basic for certification functions and most other roles). We’re also able to obtain overseas criminal records for candidates with an international background.
Employment history: We can verify a candidate’s work history and references for the past six years, including checks on the existence and authenticity of all listed employers. We will also pursue FCA regulated references for SM&CR roles. Using our CV comparison service, we can also check for any discrepancies between the CV used to secure an interview and the subsequent findings of the full background check.
Professional and academic qualifications: Where applicable, we can check the validity of someone’s professional accreditations or registrations while also checking that their academic qualifications are genuine. For all professional and academic qualifications, we’ll always check at source with the awarding body.
Social media checks: An increasingly popular – and relevant – check for employers keen to understand whether someone’s social media activity could damage their brand, reputation or client relationships. As well as highlighting illegal activity and undesirable characteristics, such checks can also play a part in authenticating a candidate’s employment history.
Financial Services Register check: We'll check an individual's status with the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), establishing their permissions, disciplinary history and waivers.
Fitness and propriety check: This is a self-declaration process covering topics such as any credit issues, directorships or convictions that a candidate may have had.
Cifas internal fraud database search: We’ll check to see whether a candidate appears on the Cifas database of employees known to have committed fraud in the workplace.
Credit checks: We’ll establish a candidate’s identity, address history and financial status via credit referencing agency records. The search will reveal details of financial probity and information including County Court Judgements, bankruptcies and voluntary arrangements within the last six years. This search will be recorded on the candidate’s file but will not be visible to other parties and will not affect the candidate’s credit score.
Directorship checks: We'll check to establish whether a candidate holds any company directorships and whether or not they are disqualified from being a director.
International fraud and sanctions watchlists: We’ll check to see whether a candidate’s name appears on any of the hundreds of publicly available watchlists worldwide, relating to anything from terrorism and fraud through to being a barred or politically exposed person.