Financial Conduct Authority – The Fit and Proper Test
November 13th, 2019 by Jake Waddingham
On the 9th December 2019 the Financial Conduct Authority (FCA) is extending the Senior Managers and Certification Regime (SM&CR) to solo-regulated firms. Their aim is to set a level of personal conduct for everyone working in the Financial industry. The scheme is already in place for banking firms. This means that all FCA solo-regulated firms, authorised under Financial Services and Markets Act 2000 (FSMA), need to take responsibility for completing the appropriate checks on staff. This is commonly termed ‘fit and proper’ checks.
What is the Senior Managers and Certification Regime (SM&CR)?
The SM&CR is a replacement for the Approved Persons Regime (APR). It strengthens the aims of the FCA to enforce standards within the industry and ensure firms can hold individuals to account. SM&CR highlights how firms should regulate employees to reduce harm to individuals and improve market integrity. The SM&CR aims to:
- Encourage staff to take personal responsibility for their actions
- Improve conduct at all levels
- Make sure firms and staff clearly understand and can show who does what
For full information about the changes and the requirements, please see the updated FCA guide to the Senior Managers and Certificate Regime, which handles many of the finer details surrounding the checks and the requirements of firms. Many of the general questions are handled below.
Which firms are covered under the extended SM&CR?
To determine if a firm is covered under the SM&CR, depends on the scope of the work they do. The FCA provide a useful decision tree tool to check if a firm is classified as Limited Scope, Core or Enhanced Firm. Once this decision has been made the guidance details the elements of SM&CR that must adhered to. It is important to note however, regardless of the organisation’s classification, all firms are subject to the Fitness and Propriety section of the SM&CR.
What is the fit and proper test?
The fit and proper test is a guide for employers when assessing a person’s fitness and propriety to perform their role. The general requirements of the fit and proper test includes:
- Honesty, integrity and reputation
- Competence and capability, including whether the person satisfies any relevant FCA training and competence requirements
- Financial soundness
Firms should check whether individuals are fit and proper to perform their role on an annual basis, and provide evidence of the assessment.
Who needs a check under the SM&CR?
- Senior Managers
- Non-Executive Directors (NEDs)
- Certification staff
What checks should be completed?
The FCA expect firms to complete and evidence as a minimum:
Criminal Record Checks
Candidates in Senior Management functions must declare their criminal history which must be evidenced by the firm by undertaking a criminal record check. For candidates who have lived overseas, firms must consider whether a criminal record check is required from the country the applicant has previously lived or worked. Non-Executive Directors who do not perform a Senior Manager role will also require a criminal record check.
References must be requested from all previous employers in the past six years. Firms must disclose all disciplinary actions from the past six years where the candidate has breached Conduct Rules and all findings that highlight a candidate’s conduct not being fit and proper.
How can DDC help with SM&CR checks?
As an established pre-employment checking provider, DDC help firms to obtain all levels of criminal record checks and regulatory references as part of the fit and proper test of candidates. DDC provide an easy to use online platform to initiate, complete and manage all checks efficiently saving your firm time. Organisations providing financial services can benefit from DDC’s re-check reminder service to ensure annual checks are completed as highlighted within the SM&CR. DDC provide an FCA compliant background checking package which includes:
- Regulatory References (including gaps of employment)
- Identity Check
- Criminal Record Check
- Credit Check
- FCA confirmation
Bespoke packages are available to accommodate your requirements with additional checks including:
- PEP’s and Sanctions
- Social Media
- International Criminal Record
Free registration and set-up with no minimum checks required. Speak with our team today on 0116 260 3055 or request for information by emailing firstname.lastname@example.org