SMCR – Fit and Proper Assessment Pitfalls

Recent updates to the Financial Conduct Authority’s expectations around Fitness and Propriety Assessments have highlighted a few issues that have caused some Senior Manager Applications to be unsuccessful, or have needed some follow-up and additional explanation or evidence before eventual approval. The application benchmarks are obviously essential to know for SMF applications, but they also provide a useful standard against which to measure the effectiveness of Certification staff and other annual assessments.

Fitness and Propriety assessments need to be carried out for two groups; Senior Managers and Certified staff. Individuals who are to be Senior Managers need to be assessed prior to the submission of the FCA approval application and on an ongoing basis following SMF approval. Certified Staff also need to be assessed prior to the firm’s certification of their ability to perform a certified function, and again on an ongoing basis. For both of these groups, the assessment on an ongoing basis should be completed at least once per year, unless there are any arising issues which could affect their fitness or propriety in their role.

In general, FIT is designed to assess three broad areas – honesty and integrity, competence and capability and financial soundness. Particularly for SMF roles, the FCA is keen to see a clear intention on the part of the applicant to be open and honest with the regulator.

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FCA Senior Manager Applications

SMCR – Are You Doing It Right?

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SM&CR Webinar

Senior Managers & Certification Regime

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The FCA makes a number of recommendations for these assessments. Although there are no prescribed questions and the expected format is loose enough to mould it to firm and individual, the main criteria for the assessment are clearly set out with substantial accompanying guidance in FIT 2. To be able to fully meet the Regulator’s expectations it is essential to carry out appropriate due diligence to establish a good set of evidence around the individual’s background. Fitness and Propriety assessments that take only the candidate’s answers to questions into account will fall short of these expectations.

The FCA doesn't set specific rules for the due diligence a firm must complete prior to submitting an application, but they do expect that firms at least request regulatory references, qualification certificates, credit checks, criminal records checks and directorship checks. Depending on the circumstances and the individual, further checks might be needed.

Bear in mind also that the SMF application form asks ‘yes’ and ‘no’ questions – these are designed to garner a fact-based response, rather than allowing for opinions around whether certain actions were justified. Although more information can be provided in other sections, when completing this section of the form keep in mind that the FCA is trying to find out facts in this section. Answering ‘no’ to the question ‘has the candidate ever been given a caution in relation to a criminal offence’ because the candidate feels the caution was unwarranted and intends to supply an explanation and evidence to support that assertion, for example, would concern the FCA.

It is important to disclose all matters that the FCA expects to know about – firms making a pre-application assessment that certain matters might not be considered important by the FCA will be taken in a dim light. Instead, where firms are convinced that the matter in question will not impact on the candidate’s fitness and propriety, it can submit additional information and an accompanying statement, explaining why. The default should be to disclose everything, “even if it may not seem relevant.”

This background reflects what is expected of initial assessments for certifications staff, and for ongoing assessments for both certification and SMF staff. While some elements won’t need to be checked each year, having a clear policy for annual assessment due diligence is a must.

Getting fitness and propriety assessments right matters. There is a risk that annual assessments are completed more casually than SMF or other initial applications. With SMCR, the onus is on firms to make sure nothing is missed. In essence, once the assessments are signed off, the firm is accepting responsibility for any errors or omissions, and the price of that – should the FCA become involved – could be considerable.

Understanding what is needed can take time and resources. We offer a range of materials that help to break down what you need to know. Our Fitness and Propriety Assessment template has helped firms of all sizes to conduct their assessments. Our free SMCR – Are you doing it right? Webinar, explores enforcement the FCA has taken on SMCR, what went wrong and the key steps firms should take to be compliant. With tips on how to avoid breaches this webinar is a fantastic opportunity to sit back and assess whether you’re doing SM&CR correctly.

For more information, contact Rob Bell: robert.bell@rbcompliance.co.uk.