FCA Fit and Proper Tests

Posted on by Steve Cox

Fit and Proper Tests – A Requirement

In December 2019 the Senior Managers and Certification Regime (SCMR) was extended from UK-incorporated banks, building societies, credit unions (and Prudential Regulation Authority – PRA – regulated investment banks and insurer) to include ALL firms solely regulated by the Financial Conduct Authority, FCA.

This was done to:

  • Further reduce financial crime.
  • Ensure financial employees take increased responsibility.
  • Make it easier to hold financial employees to account.
  • Protect consumers.

As previously, key to the Regime are “Fit and Proper Tests” which are based on 3 pillars

  1. Honesty, integrity and reputation
  2. Financial Soundness
  3. Competence and Capability

These apply to companies large and small as well as to branches of non-UK firms with permission to conduct regulated activities in the UK

Solely regulated firms are regulated by one of 3 categories under SCMR. Deciding which category applies to individual organisations is based on rules which are explained on the Financial Conduct Authority’s website.

Regardless of category, all organisations were required to have had their first assessment of the fitness and propriety of Certified Persons by 31st March 2021

Who needs to have the test?

The FCA describes this as “Certified Persons”. This is those people performing a controlled or senior management function including Directors, Non-executive Directors, Chief Executives, Partners, Directors of an unincorporated association and small friendly society function.

Issue no 13 of the FCA’s sourcebook for Fit and Proper Tests for Senior Personnel was issued in November 2021 and can be found here https://www.handbook.fca.org.uk/handbook/FIT.pdf

Passing a Fit and Proper Test is not the end of the process. Firms must continue to assess the fitness and propriety of their staff on an ongoing basis (at least annually) and are required to notify the FCA and/or the PRA if they believe am individual is no longer fit and proper to perform their role.

Is there flexibility in the interpretation of a Fit and Proper Test?

To some degree, in that Fit and Proper Tests are assessed individually. This means that someone with a criminal conviction doesn’t automatically fail.

An “honesty, integrity, reputational” judgement – for example – will be based upon:

  • The seriousness of that conviction.
  • The circumstances surrounding the offence.
  • The explanation offered by that individual.
  • The relevance to the role.
  • The length of time since the conviction happened.
  • Any evidence of rehabilitation.

What happens if someone fails?

Individuals applying for approved person status with the FCA will not be granted this if they fail a Fit and Proper Status.

If you are newly applying to register a financially regulated business and an applicant fails the test HMRC will not process your application.

If you are already registered, but a responsible person no longer meets the criteria you must advise the HMRC and confirm that they have been removed from working in that capacity. It is possible that your registration may be cancelled or suspended.

What does our Fit & Proper Test include?

As the 16th century Bishop and Satirist Joseph Hall once said, “A reputation once broken may possibly be repaired, but the world will always keep their eyes on the spot where the crack was”.

For that reason, we offer the following comprehensive Fit and Proper Test Service checks:

  • Name, address, date of birth and right to work.
  • Standard criminal record checks.
  • 6-year career history including gaps exceeding 31 days.
  • Academic and professional qualification verification.
  • Media Search.
  • Social Media Search.
  • A check of financial public records into CCJ’s, insolvency, bankruptcy, IVA’s and company directorships.
  • A check of financial sanctions, money laundering and OFAC searches.

Please get in touch if we can be of assistance in this area of financial compliance.