Employment in Financial Services

The Employment Act 2006 and the Equality Act 2017 prescribe general employment rights and obligations for both employers and employees, including those in the financial services industry.

The Isle of Man Financial Services Authority (IoM FSA) is responsible for the regulation and supervision of financial services providers in the Isle of Man. Among other things, regulated financial institutions must comply with the rules set down by the IoM FSA in its Financial Services Rule Book 2016 (as amended) (the Rule Book). The IoM FSA applies “fitness and propriety” criteria to holders of certain key roles within a licence holder. This entails the IoM FSA assessing an individual’s integrity, financial standing, competency and capacity to undertake the role.

The requirement for an individual to be “fit and proper” depends on the nature of the role rather than their job title, but generally applies to key person or senior managerial roles (also known as Controlled Functions), where the individual has significant influence or control over the regulatory matters of the financial institution or to roles that have a bearing on the regulatory objectives of the IoM FSA and its ability to meet them.

Employment law in Switzerland is based mainly on the following sources, set out in order of priority:

• the Federal Constitution;
• Cantonal Constitutions;
• public law, particularly the Federal Act on Work in Industry, Crafts and Commerce (the Labour Act) and five ordinances issued under this Act regulating work, and health and safety conditions;
• civil law, particularly the Swiss Code of Obligations (CO);
• collective bargaining agreements, if applicable;
• individual employment agreements; and
• usage, custom, doctrine, and case law.

Depending on the regulatory status of the employer and the specific activities of financial services employees, respectively, Swiss financial market laws may also apply. They are, in particular, the Federal banking, financial institutions and insurance supervision regulations.

In the United States, there are different regulatory environments, depending on the nature of the employer.

• The Securities and Exchange Commission (SEC) regulates the offer and sale of securities, the various obligations of public companies, and the registration and conduct of broker-dealers. The SEC also regulates investment advisers.
• Every state has its own securities laws, known as Blue Sky Laws. These laws vary from state to state, but most, including New York and California, impose registration requirements on broker-dealers. State laws also require employees of brokers and dealers engaged in securities transactions to register as agents or salespersons.
  • The California Corporate Securities Law of 1968 covers securities offerings in the state of California.
  • The New York General Business Law and the New York Compilations of Codes, Rules and Regulations cover securities offerings in the state of New York.
• The Financial Industry Regulatory Authority (FINRA) is a private self-regulatory organisation that oversees exchange markets and brokerage firms and regulates the conduct of broker-dealer member firms.
• The Commodity Futures Trading Commission (CFTC) regulates commodities or future brokers and exchanges under the Commodity Exchange Act (CEA).
• Banks are regulated by both federal and state regulators, including the Federal Reserve Board, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, and the Federal Deposit Insurance Corporation.
• Commodities or future brokers or exchanges are covered by the CEA and are regulated by the CFTC.
• The Protocol for Broker Recruiting is an agreement signed by more than 2,000 broker-dealers. This Protocol specifically places limits on the restrictions a signatory firm can place on representatives who move to another signatory firm.

Most states have their own financial regulatory regimes. For example:

• The New York Department of Financial Services has regulatory authority over banks and certain other financial services entities within the state of New York.
• The California Department of Financial Protection and Innovation has regulatory authority over financial services entities within the state of California.

As a matter of general Isle of Man employment law, employers must give employees written particulars of their terms and conditions of employment within four weeks of them starting work, pursuant to section 8 of the Employment Act 2006. This mandatory information includes (but is not limited to) the names of the employer and employee; the date of commencement of employment and the date when continuous service began for statutory employment rights purposes; scale or rate of remuneration; hours of work; and holiday entitlement. Typically, a written employment contract will contain the relevant information and satisfy these requirements.  

Financial institutions should also ensure that contracts of employment reinforce the requirements of meeting and maintaining the employee’s “fit and proper” status.

No special contractual documents are required when engaging employees within the financial services industry.

However, it is generally recommended to conclude a written employment contract with each employee. FINMA, for instance, requires a copy of employment contracts concluded with senior management of regulated entities.
In particular, the employment contract should reference the employer’s (regulatory) set of directions and the employee’s obligation to comply with said instructions. In addition, because regulated companies such as banks, securities firms, fund management companies, managers of collective assets or asset managers are required to obtain authorisation from FINMA before the engagement of key personnel, it may be sensible to include a condition precedent relating to FINMA’s acceptance of the relevant employee in the employment contract.

The mandatory, partially mandatory, and optional elements of an individual employment contract are outlined in article 319 et seq of the CO (in particular regarding remuneration, working time, vacation, and incapacity for work). Further regulations may apply based on collective bargaining agreements.

FINRA

Broker-dealers and investment advisors regulated by FINRA must electronically file FINRA’s Form U4 when registering “associated persons” with FINRA or transferring their registration to another broker-dealer. Broker-dealers must also create and implement written procedures to verify the facts disclosed by prospective employees on the U4.

• “Associated persons” include employees of all levels involved with investment and securities operations.
• The U4 form requires disclosure of the associated person’s background history, including any criminal convictions or civil actions, regulatory proceedings or sanctions, administrative proceedings, financial disclosures (such as bankruptcy), customer complaints, or arbitration awards.

Form U4 also contains an agreement requiring employees to submit to arbitration “any dispute, claim or controversy that may arise between [them and their] firm, or a customer, or any other person…”

Member firms must provide registered employees with an arbitration disclosure when asked to sign a U4.

SEC

SEC-regulated entities require every prospective employee to complete a questionnaire disclosing their identifying information, employment history, and record of any disciplinary actions, denial or suspension of membership of registration, criminal record, or any record of civil action against that employee. FINRA form U4, if completed, fulfils the requirements of this Rule.

California

California employees must be provided with:

• A notice of workers’ compensation rights;
• notice of disability insurance and paid family leave insurance benefits;
• sexual harassment information under the Fair Employment and Housing Act;
• notice of pay information (if applicable);
• commission contract (if applicable);
• notice of rights for victims of crime or abuse; and
• lactation accommodation policy

New York

New York employees must be provided with:

• notice of pay rate and pay days;
• commissions Agreement (if applicable);
• New York Health and Essential Rights Act;
• notice of electronic monitoring;
• New York State Workers’ Compensation Board Statement of Rights – Disability Benefits Law;
• New York State Paid Family Leave Statement of Rights;
• New York City Earned Safe and Sick Time Act (City only);
• New York City Stop Sexual Harassment Act fact sheet (City only); and
• New York City Pregnancy Accommodations at Work fact sheet (City only).