Fitness and Propriety Under SM&CR

Last week, we talked about how RWA’s research suggests that many firms remain unprepared for the upcoming implementation of the Senior Manager’s and Certification Regime (SM&CR).

One of the areas we looked at was fitness and propriety. Under SM&CR, the fit and proper test is extended to cover Certification Staff and non-approved Non-Executive Directors, as well as Senior Managers.

However, as our research indicated, 35.7% of firms have yet to develop the appropriate fitness and propriety assessments that the new regime requires. This is a significant percentage, given that SM&CR comes into effect in two months’ time and we would expect firms to be better prepared for the new regime so close to the implementation date.

So what do we mean by fitness and propriety?

Fit and proper assessments cover a range of issues, including an individual’s:

  • honesty, integrity and reputation
  • competence and capability
  • financial soundness

Some of these concepts may seem difficult to define initially. How, for instance, do you go about measuring someone’s integrity?

Areas to look at might be any criminal convictions they have, their disciplinary records, disqualifications and their general conduct. However, each case should be subject to evaluation and should consider the seriousness, circumstances and relevance of any misconduct. Rehabilitation and the amount of time that has passed since an incident of misconduct should also be taken into account.

Competence and capability might consider whether an individual meets the relevant training requirements of their role. Do they have the required experience and do they meet the responsibilities of their role?

Assessing competence and capability will also involve looking at any convictions, dismissals and suspensions from employment for drug or alcohol abuses, where this may impact a person’s ability to perform the particular senior management function or FCA certification function for which they are employed.

When assessing an individual’s financial soundness, considerations might be whether the person has been the subject of judgement debt or award in the UK or elsewhere that is outstanding or was not satisfied in a reasonable timeframe. Firms should also look at whether the person has filed for bankruptcy or made any arrangements with their creditors.

Fitness and propriety must be assessed at least annually for Certification Staff, non-approved Non-Executive Directors and Senior Managers.

Candidates for senior management roles are already required to declare a criminal record, including details of relevant spent convictions. Under SM&CR, this requirement continues, but firms must also carry out criminal record checks for each Senior Manager and Non-Executive Director requiring approval. Again, our research indicates that some firms remain unprepared for this, with only 55.4% having introduced procedures for the checking of criminal records for SMF-holders.

‘Regulatory references’ will also be required under the new regime for new appointments to Senior Management positions and for new recruits that will hold a Certification Function, including the for the appointment of non-executive directors. However, RWA’s research shows that only 25.5% of firms interviewed had systems in place for the new regulatory referencing requirements. Regulatory referencing should not be overlooked as it plays an important role in improving standards of conduct within the financial services sector by helping to prevent individuals with poor conduct records moving from one firm to another.

Improving standards conduct and creating healthy organisational cultures is central to SM&CR. A key part of this is ensuring that those with responsibilities at the highest levels within an organisation are subject to satisfactorily stringent checks. Culture and tone should be set from the top and embedded throughout organisations. As such, it’s important that those at the top are sufficiently ‘fit and proper’ to be there.

If you need help with SM&CR, please contact helpdesk@rwagroup.co.uk to find out more about our SM&CR Helpline service.

About the author

Lisa joined RWA in 2014 as an e-Learning Assistant, designing training material for the Aviva Development Zone learning platform.

Her role as Professional Standards Manager involves the creation and review of e-learning content as well as providing proofreading, copywriting and standards support across the business.

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