Having looked at the three ‘pillars’ which together define ‘fitness and propriety’, let’s move on to look at the types of fit and proper assessment which a firm might undertake.
Broadly, there are often thought to be four types of fit and proper assessment:
- A new role assessment;
- An annual assessment;
- A ‘triggered’ assessment; and
- An ‘in-year’ assessment.
Let’s take a look at each type in a little more detail (although some are largely self-explanatory).
1. New role assessment
As we saw earlier, section 60A(1) of The Financial Services and Markets Act 2000, states that BEFORE a firm makes an application for FCA approval of the appointment of a Senior Manager the FIRM must be satisfied that the candidate is a fit and proper person to perform that function. In addition, Under Section 63E(1) of FSMA, a firm must take reasonable care to ensure that none of its employees performs a Certification Function, unless the employee has a valid ‘fit and proper’ certificate issued by the firm.
It’s clear, therefore, that firms must perform fit and proper assessments on all Senior Managers and Certification Employees when those individuals take up a new role. It may also be necessary to perform fit and proper testing with respect to an individual who has joined the team via an internal transfer and with respect to an individual who has returned to the office following an extended absence.
It is worth bearing in mind that it might take some time for a new joiner (or someone returning after extended absence) to reach the necessary level of competence. This may create the need for an “in-year” fit and proper assessment – something which we discuss later.
Firms should be particularly mindful of their obligations to perform fit and proper due diligence before submitting applications for the approval of individuals to perform Senior Management Functions. As part of this process, they are required to
- provide evidence of the due diligence they have undertaken,
- provide confirmation that regulatory references have been obtained and considered,
- provide confirmation that criminal records checks have been performed, and
- Detail the rationale used to reach the conclusion that the applicant is indeed fit and proper to perform the role.
Obviously, getting this right is important both from a regulatory and a reputational point of view. The last thing a firm wants is to have a string of its candidates rejected by the FCA as this is likely to cause alarm bells to ring within the regulator regarding the robustness of the processes employed by the firm in the first place.
 FIT 1.2.-1G
 SYSC 27.2.3G
 SUP 10C.14.5GG
2. Annual assessment
We saw earlier that there is an obligation under section 63(2A) of The Financial Services and Markets Act 2000 for all firms to monitor – at least once per year – whether there are any grounds on which a regulator could withdraw the approval given to a Senior Manager. In other words, firms must monitor whether their Senior Managers remain fit and proper to perform their role. If this is no longer the case, the firm must notify the FCA.
In addition, Section 63F(5) of The Financial Services and Markets Act 2000 (as well as SYSC 27.2.9G) states that a ‘fit and proper’ certificate is valid for a maximum of 12 months (beginning on the day on which it is issued).
As such, it is clear that firms must reassess the fitness and propriety of both Senior Managers and Certification Employees at least annually.
 FIT 1.3.4AG
3. Triggered assessment
We have already looked at the concept of a “triggered assessment”, but it is worth repeating and is perhaps best explained by way of an example.
As the name suggests, a “triggered” fit and proper assessment is ‘triggered’ by an unforeseen event. It occurs because of something unforeseen that happens – typically something that the individual in question has done (or not done) but which calls into question their fitness and propriety. A simple example would be an IFA who steals a sandwich from the staff cafeteria. This would call into question the individual’s honesty. In turn, this would also call into question his or her fitness and propriety. In these circumstances, it may well be necessary to reassess whether the individual remains fit and proper to perform his or her role.
In practice, firms should, to the extent possible, specify the types of circumstances that would lead to a triggered assessment.
4. In-year assessment
In contrast to a “triggered assessment”, an “in-year” assessment is typically NOT triggered by an unforeseen event. Rather, it can be thought of as something that has been diarised. An example would be an IFA who is new to the role. That person’s employer may consider that an in-year fit and proper assessment after, say, 6 months is necessary so that the firm can demonstrate that the individual has reached full competence with respect to the role in question.
More generally, in-year assessments may arise as a result of:
- Gaps in information about the individual,
- A development need being identified, or
- The need to check on the effectiveness of mitigation/remediation steps put in place following the identification of a Certification Risk or a Certification Issue (we’ll discuss what “Certification Risks” and “Certification Issues” are later on).
In-year assessments will often focus more tightly on the issue or issues which created the need for the in-year assessment in the first place. As such, firms should, to the extent possible, specify the types of circumstances that would lead to an in-year assessment and the criteria that will determine whether an in-year assessment has been passed or failed.