SM&CR Guidance - Fit and Proper requirements

By Steven Howard , Head of Mortgage and Lending Intermediaries Compliance Services at SimplyBiz

With the recent release of Issue 3 of the The SimplyBiz Group compliance guidance on SM&CR, I thought now would be a good time to highlight another important requirement for the 9^th December 2019 transition date. This requirement highlights the importance for firms to understand their on-going responsibilities and the steps they must take after commencement to demonstrate that staff are fit and proper and to offer practical guidance to support these activities.

In the twelve months that follow the transition date, firms will be required to gather evidence and complete Fit and Proper (FIT) assessments on Senior Managers and any Certified Persons or Non-Executive Directors. This process must be completed by 9th December 2020. Firms will be expected to carry out an assessment of fitness and propriety at least annually going forward from that date.

Who do the new Fit and Proper rules apply to?

It’s important to note that the Fit and Proper requirements apply differently to Limited Scope Firms (see part 1 of the The SimplyBiz Group's SM&CR guide for more information on ‘types of firms’ described in this guidance). Sole Traders (proprietorships) without any employees will not need to perform Fit and Proper checks on themselves. However, depending on the nature of the firm’s activities, Training and Competence Handbook requirements will still apply. This includes maintaining KPIs, holding appropriate qualifications and continuous professional development. Similarly, the existing FCA general notification requirements will continue to apply in relation to matters where the regulator would expect to receive notice.

Non-SMF directors (both Executive and Non-Executive) at limited permission firms, will also not be subject to the Fit and Proper requirements. This might typically apply to a limited permission consumer credit firm. Unless firms have mortgage or investment advisers, they will not have any certified persons.

However, this exception does not apply to firms that are incorporated (e.g. a limited company) where the only senior manager is also the only adviser in the firm. These firms will still be subject to the SM&CR Fit and Proper requirements. So as a FIBA member, your firm might not have certified people but your firm might well have senior managers, especially if you are incorporated.

A general overview of the (FIT) requirements

The new guidance expects firms to assess fitness and propriety based on three familiar concepts as set out in the ‘Competent Employees Rule’ under the FIT chapter of the FCA handbook.
 

1. Honesty, Integrity and Reputation
   Firms are expected to be aware of relevant matters in determining the honesty, integrity and reputation of Senior Managers, Certified Persons and (within ‘core’ firms) Non-Executive Directors (‘NEDs’). In considering the reputation of staff, a firm should have regard to whether that person’s reputation might have an adverse impact upon the firm for which the function is to be performed and the person’s responsibilities.
    
2. Financial soundness
   Firms should be aware of the financial soundness of existing Senior Managers and Certified Persons and keep this under review. It is The SimplyBiz Group’s view that financial soundness can be assessed by a combination of self-declaration and obtaining a formal credit check from an independent source
    
3. Competence and Capability
   In assessing competence and capability of an existing Senior Manager or Certified Person, a firm is expected to check that the individual:
   • satisfies the FCA training and competence requirements;
   • has the required experience and training; and
   • has adequate time to perform the function

Once again, I would recommend that you check further guidance provided by your compliance service provider in relation to what might be relevant to you in order to make sure you are on the right track and you are fully aware of all of your responsibilities. Preparation will be key to ensuring a smooth transition over to this new regime.