Simon Morris, partner at CMS Cameron McKenna, discusses the impact of the rigorous procedures when recruiting staff in the financial services industry.
As if the recruitment process wasn’t tricky enough, it can be even harder for a mainstream financial services firm. Not only are they trying to find the best person, but they then need to get senior management and customer facing staff such as sellers, advisers and brokers approved by the Financial Services Authority (FSA).
Getting approval from the regulator is a key pillar of financial services regulation in the UK, and one not replicated elsewhere in Europe. Known as ‘individual approval’ it is often a matter of the watchdog rubber-stamping the new recruit, but problems do arise, often through no fault of the candidate and without FSA approval, that person cannot start work.
Approval amounts to signing off the candidate to be fit and proper for the job. This essentially means three things: financial probity, that the applicant is not bankrupt nor has any outstanding judgments against them; that they have the appropriate skills and experience; and that they have integrity – no criminal convictions or similar concerns.
The burden is on firms to do their own homework and in 99 out of 100 cases they will be able to weed out any unsuitable applicants and pass on the details of the successful candidate for FSA approval without any problems. But if a firm puts someone up without doing the appropriate background checks and that person turns out not to be ‘fit and proper’, the egg does not just land on the candidate’s face. The FSA takes a dim view of any firm with apparently weak systems and controls and may decide that it should take a closer look at the way that firm works.
But the FSA rightly recognises that firms have limited access to records, and that it can, and does delve deeper. Indeed the FSA’s superior access includes a database of criminal convictions and county court judgments, as well as data from overseas regulators. Occasionally, by checking these sources, it finds information that sets off alarm bells. But this need not automatically mean the end of the line. By listening to its concerns and going back over events, it can be possible to put together a case to convince the regulator to change its mind.
One recent instance involved a large fund manager. It had selected its ideal candidate, who was duly presented for approval for a senior management position, but when the FSA did its own checks it discovered that the candidate’s former employer had been involved in an SEC action in the States. This link was enough to taint the candidate and the FSA indicated that it was minded to decline approval. After legal advice, the firm’s response included obtaining written statements from management at the former employer clarifying that he was not responsible for the malpractices, and these convinced the FSA of the candidate’s propriety – he was duly approved.
Other problems can arise when an overseas firm wants to appoint a foreigner to a UK senior position. The FSA has challenged applications on the grounds that the applicant does not have sufficient UK experience, or relevant managerial experience. One impasse was overcome by digging down into the firm’s records to show that the candidate had been a member of a regional board in his home country, had significant managerial reporting experience and had overseen many of the bank’s local systems and controls.
Another fairly common problem is where the firm wants to employ someone who has left the former employer under a cloud. For example, this year a senior banker trying to change jobs was named as a witness in an acrimonious dispute between their former employer and a third party. The FSA didn’t like this and refused to accept that the candidate’s integrity was unblemished – until the Regulatory Decisions Committee, the FSA’s highest internal committee, examined the case and took all of 10 minutes to decide that he was fit and proper.
Problems over individual registration can often be avoided by looking at the application through FSA’s eyes. If it is challenged, persevere – you will often succeed. The FSA has a good track record of listening to well argued cases and, by presenting documentation that addresses the FSA’s concerns, it is possible to build a successful case. It recognises that good people are hard to find and ultimately worth fighting for.
Simon Morris, Partner, CMS Cameron McKenna