Fit and Proper Testing: what you need to know

Fit and proper testing is another key element of the SM&CR.

Here’s what you need to know…

1. Fit and proper testing applies to Senior Manager, candidates to be Senior Managers, Certification Employees, proposed Certification Employees and non-Senior Managers board directors of core and enhanced firms.
2. Fit and proper testing does NOT apply to non-executive directors, sole traders, appointed representatives and individuals based outside of the UK (who do not deal with UK clients).
3. Broadly, neither emergency appointments of Senior Managers or Certification Employees, nor those performing temporary UK roles (provided that they are “appropriately supervised”), are subject to fit and proper testing.
4. ‘Fit and proper’ assessments should be conducted annually.  In-scope individuals should also be assessed if they are new to a role, on a significant role change or promotion, or if fitness and propriety is called into question.
5. Firms must be satisfied that their Senior Managers are fit and proper to perform their roles BEFORE making an application to the FCA for their approval.
6. Firms must notify the FCA if they conclude that there are grounds to suggest that a Senior Manager is no longer fit and proper to perform his/her role.
7. A firm can only issue a ‘fit and proper’ certificate to a Certification Employee if it is satisfied that the individual in question is fit and proper to perform the role in question.
8. ‘Fit and proper’ certificates are valid for a maximum of 12 months (beginning on the day on which they are issued).
9. The three ‘pillars’ against which fitness and propriety should be assessed are (a) honesty, integrity and reputation, (b) competence and capability, and (c) financial soundness.
10. Regulatory references form a key plank of fit and proper assessments.  However, firms should avoid becoming overly reliant on regulatory references as they may not disclose the entire picture.
11. An up-to-date job description is a pre-requisite for all ‘fit and proper’ assessments.
12. Criminal convictions do not automatically mean that an individual is not fit and proper to perform his/her role (but dishonesty offences are particularly relevant in this regard).
13. Drug or alcohol abuse (even where this has resulted in convictions) is only relevant to the question of whether an individual can perform his/her role (i.e. to whether they have the requisite competence and capability).
14. To be ‘competent and capable’, an individual must have sufficient TIME to perform the relevant function.
15. A person of limited means should not automatically be taken to be financially unsound.
16. Non-financial misconduct (misconduct which takes place outside of the workplace) must be factored into ‘fit and proper’ assessments. 
17. A firm does NOT need to issue multiple ‘fit and proper’ certificates for a Certification Employee who performs multiple Certification Functions (but the individual must be fit and proper to perform all underlying functions).
18. If a firm decides NOT to issue a fit and proper certificate, it must give the relevant person a written notice stating (a) what steps (if any) it proposes to take as a result of the decision, and (b) the reasons for taking those steps.
19. If a firm refuses to renew an individual’s ‘fit and proper’ certificate, the firm must take reasonable care to ensure the individual ceases to perform the Certification Function(s) in question.
20. If a firm decides not to issue a ‘fit and proper’ certificate, it should consider if the circumstances warrant making a notification to the FCA for a breach of the Conduct Rules.