Transform HR in financial services

Employers in financial services need to comply with employment law, but they may also have extra regulatory duties because of the nature of their business. The rules that apply will depend on the type of firm, the work it carries out and the employee’s role.

For HR, this means that everyday people processes may need an additional compliance check. This can include recruitment, fitness and propriety assessments, regulatory references, conduct standards, whistleblowing arrangements, pay and bonuses, and the handling of disciplinary action and dismissals.

HR should consider early on whether an issue is only an employment law matter or whether it also needs input from compliance, legal or senior management colleagues.

The Senior Managers and Certification Regime (SM&CR) is relevant when a regulated financial services firm appoints, assesses or manages people in certain roles. Depending on the firm and the role, an individual who performs a senior management function may need approval from the FCA and/or PRA before they start the role.

Firms must also assess whether employees performing certification functions are fit and proper to do their role, and issue certificates where required. These checks should be reviewed at least annually.

The SM&CR can affect recruitment checks, internal moves, promotions, performance management, disciplinary action and references. HR should make sure the firm can identify roles covered by the regime and keep clear records of approvals, certification decisions, conduct rule training and fitness and propriety assessments.

When a disciplinary issue arises in a regulated financial services firm, the employer should consider whether the disciplinary creates regulatory issues as well as employment law issues.

This may include whether:

• the conduct amounts to a breach of the conduct rules;
• the conduct affects the individual’s fitness and propriety; and
• the firm has any obligation to notify the FCA or PRA.

These points should be considered alongside the employer’s normal disciplinary process and before a final decision is made, especially where dismissal or another significant disciplinary sanction is being considered.

The employer should still follow a fair process. This includes investigating the allegations, giving the employee a chance to respond and considering any mitigating factors. If the employer does not deal with the regulatory issues properly, this may create compliance risk. If it does not follow a fair process, it may face employment tribunal claims.

Remuneration in financial services may be subject to regulatory rules designed to support sound and effective risk management. This means that pay arrangements, particularly variable remuneration, may need to be considered from a regulatory as well as an employment law perspective.

The rules that apply will depend on the type of firm, the activities it carries out and the individual’s role. HR may need to take account of requirements relating to bonus structures, deferral, malus, clawback and governance arrangements. Remuneration policies should be documented clearly and applied consistently.

Employers should ensure that reward practices do not encourage excessive risk-taking or undermine regulatory expectations around conduct and culture.

Financial services firms should have arrangements that allow workers to raise concerns and ensure that those concerns are handled appropriately.

The arrangements should make clear how workers can raise concerns internally and, where relevant, that concerns may also be reported to the FCA or PRA. Firms should also take steps to protect whistleblowers from victimisation and to ensure confidentiality where appropriate.

Where required, firms should appoint a whistleblowers’ champion, keep appropriate records and provide relevant training. These arrangements should be reviewed regularly to ensure they remain effective.