Regulated firms' responsibilities for their staff include recruiting appropriately, providing adequate training and monitoring employees' actions during the course of their employment. There may also be continuing responsibilities after staff have left employment.
If a broker is intending to recruit an individual who will be involved, directly or indirectly, with retail customers, the FSA requires the firm to:
Information must be obtained from a suitable source. Simply relying on CVs may not be sufficient. The firm must also determine new employees' training needs before they are let loose on customers. While this does not preclude "learning on the job", it would be unwise to throw new employees in at the deep end and work out where their knowledge gaps are later.
Employees should not be allowed to carry out or oversee activities unless they have been assessed as competent or are being appropriately supervised. There are no specific examination requirements for general insurance business, but firms must keep a record of the criteria applied in assessing competence and how and when the competence decision was made.
Continuing education is also required, as firms must ensure that staff maintain competence. Training should be carefully tailored, as it must balance the knowledge and skills necessary to fulfil particular roles with employees' specific training needs.
Training must remain effective and up to date, taking into account changes to products, legislation and regulation. Firms will need to keep training records demonstrating the criteria applied in assessing continuing competence and how individuals continue to be competent.
Individuals who carry out certain roles within authorised firms need to obtain prior approval from the FSA. The activities carried out by these persons are known as "controlled functions" and the people who carry them out are known as "approved persons". Controlled functions are wide-ranging and include being a director or a compliance officer. When an individual ceases to perform a controlled function, whether because of an internal reorganisation or because the individual has left the firm, the FSA must be informed within seven working days. However, if the individual has been dismissed, suspended, is under investigation, or the individual's fitness and propriety is in question, the FSA must be notified as soon as is practicable.
Although in the general insurance field there is no regulatory requirement to provide references, prospective employers are likely to call for them. Former employers owe a duty to provide references that are fair and reasonable. An ex-employee may have a claim for negligent misstatement or even libel if a reference is inaccurate.
Deliberately or recklessly providing a misleading reference could also be a breach of Principle 1 of the FSA's Principles for Businesses that "a firm must conduct its business with integrity", with the possible consequence of disciplinary action.
An employer may have a claim for any loss suffered because of a negligent reference. The former employer cannot limit this risk by including a disclaimer, because the Unfair Contract Terms Act 1977 prevents the use of disclaimers to limit liability for negligent misstatements in references. On that basis firms should take great care when preparing references for their former employees.
The extent of an employer's duty in relation to references in the financial services industry was considered in Milverton v Burns Anderson [2002] and [2003]. The claimant, Milverton, worked for an independent financial adviser. He opened a client account in his own name for the encashment of a cheque that subsequently turned out to have been stolen. Milverton did not have permission under the relevant rules to open a client account.
While the proceedings in relation to the stolen cheque were compromised, Milverton was dismissed from the network as a result of the rule breach. His reference stated that Milverton was: "Totally unsuitable for a job as a sales associate with your firm or any other firm".
Milverton brought an action for negligent misrepresentation, claiming that his employer had failed in its duty to investigate the matter thoroughly. The court held that the employer was not required to undertake an independent forensic investigation of the circumstances surrounding the encashment of the cheque and could rely on information provided to it by Milverton, thus Milverton's claim failed.
