The Fit And Proper Test ' What Does It Mean?

• Law Firm: Herrington Carmichael
• Subject Matter: Finance and Banking, Financial Services
• Author: Nicola O'Dwyer
• Published date: 31 March 2023

All firms regulated or authorised under the Financial Services and Markets Act 2000 are subject to the Senior Management and Certification Regime ('SM&CR'). The SM&CR is applicable to all individuals who perform financial services roles, including members of governing bodies and employees with senior management function.

As part of the SM&CR, senior members and certification regime staff must meet the required standards of fitness and propriety as set out in the Financial Conduct Authority's ('FCA') Handbook.

The Fit and Proper Test

The Fit and Proper Test ('the Test') is comprised of three elements. These are:

• Honesty, integrity and reputation,
• Competence and capability; and,
• Financial soundness.

In regard to an individual's honesty, integrity and reputation, the FCA will consider whether the individual has any history of criminality, been subject to adverse findings or settlements in civil proceedings or contravened regulatory requirements.

The FCA will consider an individual's competence and capability by having regard to all relevant matters including whether the individual has demonstrated by experience that they are suitable and whether they have the time available to perform the controlled function.

In assessing an individual's financial soundness, the FCA will review whether the individual has been subject to judgment debts or awards, creditor arrangements or matters relating to bankruptcy, in the UK or elsewhere. However, even if the individual is of limited financial means, this will not, in itself, affect their suitability. Unless there is any concern by the FCA in regard to an individual's financial situation, the individual will not normally be required to supply a statement of assets or liabilities.

Satisfying the Test

Firms are obliged to perform due diligence to satisfy themselves of an individual's fitness and propriety and must obtain evidence of this. This includes:

• obtaining a regulatory reference; and
• undertaking a DBS check.

Where a DBS check uncovers a criminal conviction, the firm should have regard to the seriousness and circumstances of the offence, along with the explanation offered by the individual. The length of time since the offence was committed and any evidence of rehabilitation should also be considered. These should be considered alongside the relevance of the offence to the individual's proposed role.

A firm must also set out their rationale for concluding that the individual satisfies the Test, so it is important...