The Fit and Proper test for Employees and Senior Personnel sourcebook, or FIT is in the High Level Standards block of the FCA Handbook.
FIT applies to all firms who are covered by the Senior Managers and Certification Regime (SMCR) and gives guidance to firms as to how to assess their Senior Managers and Certification staff.
What is Fitness and Propriety?
Standards of fitness and propriety are an underlying concept in the SMCR regime and in relation to individuals approved by the FCA and PRA. It is the underlying principle behind the Certification Regime.
Whether the firm concerned considers an individual to be fit and proper to fulfil the specified role will depend on an assessment by reference to the following factors:
- The individual’s honesty, integrity, and reputation;
- The individual’s competence and capability; and
- The individual’s financial soundness.
If an individual has a finding of gross misconduct or is otherwise found to have breached the FCA’s conduct rules, this may result in the individual ceasing to be fit and proper, which prevents them from being employed in any senior management roles within FCA-regulated firms.
The FCA may ask to see the evidence used when issuing certification as part of its supervisory activity.
For employees who are certified under the Certification Regime, the same standards will apply. The firm will record the evidence it has that the individual is fit and proper to be certified for a further year prior to renewing certification. The FCA may ask to see the evidence used when issuing certification as part of its supervisory activity.
The FCA expects firms to have a detailed and robust process to assess fitness and propriety which links to the firm’s performance management and appraisal system.
These are eight indicators that you may consider when reviewing the fitness and propriety (F&P) of an SMF or a Certification Individual:
- F&P is integrated with the performance review process and HR.
- F&P checks identify issues and some individuals may fail.
- Align F&P checks to an individual’s training and development plan.
- Competence assessments are comprehensive and align to an individual’s role
- Oversight and reporting is carried out at the highest level with a firm – by an SMF holder.
- Use the data from the F&P exercise to inform action plans, which may lead to individual or group coaching modules.
- Senior Managers are suitably trained to perform F&P checks.
- A Panel of SMFs evaluate marginal cases.
Honesty, Integrity, & Reputation
The FCA may place honesty, integrity, and reputation into a single grouping, but they are very distinct.
Honesty
Honesty is defined by the Cambridge Dictionary as “telling the truth or able to be trusted and not likely to steal, cheat, or lie.” It is a basic moral quality which is expected of all members of society. Honesty involves being truthful about important matters and respecting the property rights of others.
Integrity
There is a quote attributed to the author C S Lewis: “integrity is doing the right thing, even when no one is watching.” Thus, integrity relates to a person’s morality and “ethical compass,” specifically whether it ‘points in the right or the wrong direction.
Reputation
The Oxford English Dictionary defines reputation as “the condition, quality, or fact of being highly regarded or esteemed; credit, fame, distinction; respectability, good report.”
The challenge for firms is how they assess and record an individual’s honesty, integrity, and reputation. There may be KPIs that indicate these qualities, complaints, or breaches for example. A firm may require that an individual obtains a certificate from the Disclosure and Barring Service (DBS) as part of the onboarding process and periodically thereafter.
In considering honesty, integrity, and reputation, the FCA will look at whether the individual’s reputation might have an adverse impact upon the firm for which the function is or is to be performed and at the person’s responsibilities. The firm may use the same criteria to assess if individual certification may be issued.
Competence and Capability
The Collins Dictionary has a simple definition of competence: “the ability to do something well, or effectively.” It defines capability as having the ability or qualities that are necessary to complete a task
It is generally thought that there are two aspects to the concept of competence and capability:
Firstly, the professional experience and qualifications that an individual brings to a role; and
Secondly, the performance of the individual within their role.
In determining a person’s competence and capability, the FCA, in accordance with FIT will have regard to all relevant matters including but not limited to:
- whether the person satisfies the relevant FCA training and competence requirements in relation to the SMF the person performs or is intended to perform;
- whether the person has demonstrated by experience and training that they are suitable, or will be suitable if approved, to perform the SMF;
- whether the person has adequate time to perform the SMF and meet the responsibilities associated with that function.
Firms assessing certification individuals will apply the same criteria when considering issuing or renewing certification.
Financial Advisers will be part of a Training & Competence Scheme and will be allocated a Supervisor who will carry out regular one-to-one meetings with the adviser.
Supervisors will use KPIs and other tools to assess an adviser’s competence and capability and will put a personal development plan in place to improve performance or facilitate the adviser entering other markets, maybe by achieving a further qualification.
Financial Soundness
The third and final ‘pillar’ of fitness and propriety is financial soundness. The Banking Standards Board states that “Financial soundness is demonstrated by an individual who behaves in a financially responsible way and whose financial circumstances do not create a risk of compromising his or her professional and/or ethical conduct.”
FIT 2.3.1 G states: “In determining a person’s financial soundness, the FCA will have regard, and a firm should also have regard, to any factors including, but not limited to:
- whether the person has been the subject of any judgment debt or award, in the United Kingdom or elsewhere, that remains outstanding or was not satisfied within a reasonable period;
- whether, in the United Kingdom or elsewhere, the person has made any arrangements with their creditors, filed for bankruptcy, had a bankruptcy petition served on them, been adjudged bankrupt, been the subject of a bankruptcy restrictions order (including an interim bankruptcy restrictions order), offered a bankruptcy restrictions undertaking, had assets sequestrated, or been involved in proceedings relating to any of these.”
FIT 2.3.2 G goes on to state that “The FCA will not normally require a candidate to supply a statement of assets or liabilities. The fact that a person may be of limited financial means will not, in itself, affect their suitability to perform a controlled function. The FCA would expect a firm to take a similar view in assessing whether staff being assessed under FIT, are fit and proper.
A firm may require a new member of staff to provide a credit report as part of the recruitment process, and annually thereafter.
