Comments are closed. Previous Article Next Article Related posts:No related photos. Passing the fitness testOn 1 Apr 2002 in Personnel Today Arthur Andersen’s recent debacle has reminded us all of the importance ofupholding financial services standards. Phil Boucher examines HR’s new responsibilities in regulating asector particularly vulnerable to the actions of rogue employeesFirst there was D-day. Then VE-day and VJ-day. And morerecently Y2K-day. But if you work in HR within the financial services sectoryou are probably more concerned with the N2-day that took place on 30 November2001. On N2 day there was no end to war and the world didn’t fall into anIT-inspired Armageddon. In fact, the only thing that happened was someseemingly harmless legislation – the Financial Services and Markets Act 2000 –came into operation. But hidden beneath its exterior lurk some important implications for a wholerange of HR issues including recruitment, whistleblowing, employment contractsand training within the financial sector. HR departments that fail to stayabreast of these are likely to incur the wrath of a newly invigorated FinancialServices Authority. Put simply, the N2 regulations have created a single regulatory regime forthe financial sector. The intention is to create a system where all financialservices employees are closely regulated by the FSA, in the hope that itprevents the Nick Leesons of this world from rearing their expensive heads everagain. As a result HR now has to keep meticulous records of all its employees’ jobmovements and promotions. It also has to ensure that all financial workers are registeredwith the FSA. This is having a major effect on the recruitment of new workers. Olivia Sinfield, solicitor at Osborne Clarke, says: “Anybody who’semploying now has to ensure that the people they are taking on are authorisedby the FSA. They have to check that they are fit and proper for their role,check that they’re up to doing the job, check that they are competent, andcheck all of their qualifications thoroughly.” If HR doesn’t do this and it later transpires that an employee isunqualified or even banned from working in the financial markets, the firm isliable to face action from the FSA. To head off this potential problem at the recruitment stage, employers haveto take up all references, check academic and work histories, and possibly analysethe candidate’s financial situation. It may even be prudent to run a search forcounty court judgements – although the individual’s consent must be obtainedfirst. Jonathan Carr, associate at Allen & Overy, says: “HR has to checkanything that affects a candidate’s fitness to work in the City. They have tothink about anything that may affect the honesty and integrity of the personand anything that might damage the standing and reputation of theemployer.” The FSA has indicated that the approval process should not take long tocomplete, as only those who are new to the sector will face a full examinationof their character. But the FSA has a period of up to three months in which todetermine whether someone is fit to do a specified job. To smooth this process employment lawyers suggest it is best for HR to makethe responsibilities of the job as clear as possible during the recruitmentprocess. This includes detailing the level of supervision the position willhave. “Regulatory clearance has always been important but now it’scrucial,” says Anna Fletcher, associate in the employment team at Wragge& Co. “HR recruitment needs to make sure that the person meets thestandards of fitness and propriety laid down by the FSA. And this can beaffected in so many ways that recruiters have to think very carefully about theaction they take.” If the applicant is judged as a fit and proper person to perform therelevant function then the application will be granted. However, this may taketime and require the starting date for employment to be moved back. Once the individual starts work they must continue to remain fit and properand observe the standards of conduct expected by the FSA. HR also has to keepthe FSA informed of any promotions or transfers. More importantly, the employermust explain to the employee that any career advancements are subject to themcontinuing to have regulatory approval. If an individual is promised promotionwithout these conditions attached and it is subsequently denied because theirapproved status is withdrawn or refused, there is a risk that they could resignand claim constructive dismissal on the grounds that the duty of mutual trustand confidence has been breached. Given that an unfair dismissal claim can now net up to £51,700, it is aneventuality that HR will want to avoid if at all possible. As Carr says:”It is basically ensuring that people are in the right place by beefing upall the regulations around promotion and staff assessment.” The surest way of doing this is to make sure that employees know everythinghinges on them maintaining fitness and propriety. Line managers responsible forin-house promotion must also be informed that any offer is made with thecondition attached. Job offers, job descriptions, letters of appointment,contracts of employment and staff handbooks must all set out that an individualis obliged to act in accordance with the statements of principle issued by theFSA. This should be continued for the induction process and any appraisal ortraining documentation. And most importantly, this paper trail has to be kepton file in case of proceedings at a later stage. Jonathan Chamberlain, partner in the employment team at Wragge & Co,says: “N2 requires increased monitoring throughout the employmentrelationship. The intention is that from an HR perspective all yourdocumentation, training and appraisals are in order and accountable to theFSA.” In extreme cases the FSA can remove a firm’s licence to trade if it is foundto have knowingly allowed negligence and gross misconduct to occur. However,this is only likely if there is a continued and blatant flaunting of theregulations. In most instances it is the individual alone who will be sanctioned,resulting in anything from the removal of FSA approval to unlimited fines and apublished statement of misconduct. HR can limit the extent to which this reflects on a firm’s reputation byopenly taking a proactive approach. If the FSA can see that a firm is takingthe issue seriously it is less likely to interfere. The best way of doing thisis through a written disciplinary procedure that stresses individualaccountability. The FSA is also likely to allow managers to escape unpunishedunless it can be proven that they have knowingly allowed the misconduct tooccur. The arrival of N2 has put much greater emphasis on the whistleblower.”N2 creates a positive duty to blow the whistle within anorganisation,” says Carr. “HR has a role to play in developing theidea that it is every employee’s professional duty.” While the FSA may have increased powers, it looks set to take a fairlylow-key approach and allow the 10,500 firms involved to run their own affairswhere possible. However, HR has to ensure that all employees are competent,appropriately supervised and trained, and capable of performing their job to ahigh standard of competence, and it is here that the paper trail is mostimportant. If the FSA discovers that the firm has failed fully to check theemployee’s performance and suitability for the position it is liable to facefurther action – even if the individual is by then working for someone else. Staying on the right side of the FSAThe FSA handbook does not describeprecisely what HR has to do as a result of the new regime. But these are someof the issues that HR should be aware of in the short term.Recruitment Check the background of potential recruits. While HR has a dutyto look into a person’s history, it has to be done within the confines of theData Protection Act and the new code of practice. This means all applicationshave to be treated on their individual merits, as the background checks must beboth necessary and relevant to the position.Along with checking references HR hasto find out if a candidate is financially sound. The easiest way of doing thisis through an agency. For this it is vital to get the consent of the subject,particularly when vetting for issues such as past disciplinary action,bankruptcy or CCJs.Employment contractsN2 emphasises the need for a high standard of professionalcompetence. If people fall below the required standard HR needs to be able totake action. For this reason, financial employees’ contracts of employmentshould be changed to allow for dismissal in circumstances where standards offitness and propriety are breached or FSA rules broken. This will make it fareasier for employers to dismiss for gross misconduct in such situations. Disciplinary proceduresWhile it used to be the case that disciplinary notes were spentafter a couple of years it is now important to keep hold of them for far longerunder N2 because you may need to produce them a couple of years down the lineto show what action an employee (or former employee) has faced.