An Employer’s Guide to the FCA’s Fit and Proper Test

The Financial Conduct Authority (FCA)'s Fit and Proper Test is a critical assessment used to ensure that individuals in key roles within financial services firms meet necessary standards of honesty, integrity, competence, and financial soundness to do their job. This test forms part of the Senior Managers and Certification Regime (SM&CR) and applies to regulated firms and specific roles within those firms.

The Fit and Proper Test applies across the UK financial services sector, including:

• Banking
  
  
• Insurance
  
  
• Asset and investment management
  
  
• Consumer credit
  
  
• Financial advice
  
  
• Pension management

The test must be conducted on any individuals in roles that can significantly impact a firm’s conduct or risk, such as:

• Senior Management Functions (SMFs) such as Chief Executive Officers, Chief Risk Officers, and Compliance Officers
  
  
• Roles that are not senior managers but still significantly influence the firm
  
  
  
  • Financial advisers
    
    
  • Investment managers
    
    
  • Underwriters
    
    
  • Mortgage advisors
    
    
  • Portfolio managers
    
    
• Non-Executive Directors (with certain responsibilities)

Why employers must comply with the Fit and Proper Test

Under the SM&CR, financial firms have a legal obligation to conduct tests on relevant employees. These tests need to be conducted prior to employment and annually throughout an employee’s tenure. Records must be made in case the FCA wants to conduct an audit. Failing to fulfil these obligations could result in fines, reputational damage, and even the potential withdrawal of FCA authorisation – the latter of which could put a firm out of business.

What criteria must staff adhere to?

People in positions of power within a financial institution need to demonstrate three key criteria in order to prove they are the right person for the job.

How to demonstrate honesty, integrity, and reputation

Look into a person’s:

• Criminal convictions (especially financial crimes)
  
  
• Regulatory breaches
  
  
• Civil litigation involving fraud or dishonesty
  
  
• Disciplinary action by professional bodies

Competence and capability

Check a person’s:

• Relevant qualifications and training
  
  
• Technical knowledge of the role
  
  
• Experience in the financial services industry
  
  
• Performance track record

Financial Soundness

Checking a person’s financial decisions is key. Look into:

• Financial solvency
  
  
• Bankruptcy or insolvency history
  
  
• Outstanding judgments or unpaid debts

How to conduct the Fit and Proper Test

Gather information

The basics of any check starts here.

‍

• CV and employment history (qualifications and professional memberships may be included here)
• Reference checks
• Criminal record check (DBS)
• Credit checks

Check out the FCA’s assessment template to achieve consistency and fairness for everyone.

It’s important that everyone assessed undergoes the same process. This also helps with fully complying with the FCA.

Conduct interviews and assessments 

Evaluate technical competencies and necessary skills and knowledge to determine whether or not the person is capable of doing and suitable for the role.

Record everything

The FCA is within its rights to conduct audits and it’s therefore crucial that everything is documented well. It also helps organisationally – you have a record of the entire decision-making process and supporting evidence should you need it at some point.

Annual rescreening

If the person meets all three of the FCA’s outlined criteria, they can be hired/continue with their employment. However, any individuals that require the test must be rescreened annually to stay compliant and continue operating under the FCA’s authorisation.

The FCA’s Fit and Proper Test is a fundamental tool for ensuring that individuals in key roles within financial services firms uphold the highest standards of conduct, competence, and financial responsibility. For employers, understanding and properly implementing this test is not just a regulatory requirement; it’s the key to protecting your business, your clients, and the wider financial system. A financial system without regulation simply cannot exist – Fit and Proper Tests stop this from happening.

‍