Fitness and Propriety Assessments: A Practical Guide for SM&CR Firms

What fitness and propriety means under FIT

The FIT sourcebook sets out the criteria the FCA uses, and that firms should apply, when deciding whether an individual is fit and proper. FIT 2 identifies three main assessment criteria: honesty, integrity and reputation; competence and capability; and financial soundness. These three factors run through every fitness and propriety decision, whether the FCA is approving a senior manager or a firm is certifying an employee in-house.

The FCA is clear that fitness and propriety is judged on a case-by-case basis. A single adverse finding does not automatically disqualify someone. For example, the FCA states that a conviction for a criminal offence will not automatically mean an application is rejected, and that limited financial means will not, in itself, affect a person's suitability. What matters is the seriousness of the matter, its relevance to the role, the explanation offered and the passage of time.

Because the test is holistic, firms need to weigh all relevant matters together rather than reading each factor in isolation. A firm that wants to embed this discipline into its wider control framework can align it with the systems and records described on the Nasara Connect control platform, which keeps assessment evidence, references and review dates in one auditable place.

Honesty, integrity and reputation (FIT 2.1)

The first factor asks whether a person's past conduct shows they can be trusted. In assessing honesty, integrity and reputation, a firm should consider all relevant matters, which may have arisen in the United Kingdom or elsewhere. These include criminal convictions, particularly for dishonesty, fraud or financial crime; civil proceedings and their outcomes; regulatory investigations and disciplinary actions; complaints connected to regulated activities; dismissals or resignations from positions of trust; and the individual's candour and truthfulness in dealings with regulators.

The FCA expects firms to inform themselves properly. That means checking for convictions where possible and contacting previous employers who have employed the candidate. Where there is a conviction, the firm should weigh the seriousness of the offence, the circumstances surrounding it, the explanation offered, the relevance of the offence to the proposed role, the time that has passed and any evidence of rehabilitation.

This factor is where regulatory references and criminal records checks do most of their work, because the honesty and reputation picture is usually assembled from documents held by third parties rather than the candidate alone. The firm's job is to gather that material, assess it fairly and record its reasoning.

Competence and capability (FIT 2.2)

The second factor is about whether the person can actually do the job. In determining competence and capability, the FCA has regard to all relevant matters, including whether the person satisfies the relevant FCA training and competence requirements for the function they perform or are intended to perform, whether they have demonstrated by experience and training that they are suitable to perform the function, and whether they have adequate time to perform the function and meet the responsibilities associated with it.

Time and capacity matter as much as qualifications. A candidate may be technically excellent but stretched too thinly across multiple roles to discharge a senior management function properly. Firms should assess the realistic time commitment of the role against the individual's other responsibilities, both inside and outside the firm.

Evidence for this factor typically comes from qualifications, continuing professional development records, training and competence files, appraisals and a documented assessment of the role's demands. Where a firm is preparing a senior manager application, this is also where it demonstrates that the candidate fits the statement of responsibilities being submitted.

Financial soundness (FIT 2.3)

The third factor looks at whether the person's financial affairs are in reasonable order. In determining financial soundness, the FCA has regard to matters including whether the person has been subject to any judgment debt or award, in the United Kingdom or elsewhere, that remains outstanding or was not satisfied within a reasonable period, and whether the person has made arrangements with creditors, filed for bankruptcy, been adjudged bankrupt, had assets sequestrated, or been involved in related proceedings.

Crucially, the FCA states that limited financial means will not, in itself, affect a person's suitability. The concern is not wealth but the pattern of behaviour that financial difficulty can reveal, such as unmet obligations or an inability to manage commitments. A candidate of modest means who manages their affairs responsibly is not disadvantaged by this factor.

Firms usually evidence this factor through credit and financial checks and self-declarations. As with the other factors, an adverse indicator is a prompt to investigate and record reasoning, not an automatic bar.

Who must be assessed and how often

Fitness and propriety assessments apply to senior management function (SMF) holders and to certification staff. Senior managers require FCA approval before they take up their role, supported by the firm's own fitness and propriety assessment and a criminal records check. Certification staff are not approved by the FCA; instead the firm must check and certify that they are fit and proper to perform their role on appointment and at least once a year.

The certification regime requires firms to assess fitness and propriety both on appointment and on an ongoing basis, which must include an assessment at least annually. Where an individual passes, the firm issues a certificate confirming they are fit and proper for the specified function. Non-executive directors also fall within scope of the fitness and propriety and regulatory reference framework: a function performed by a non-executive director acting as such is not a certification function, but non-SMF NEDs remain subject to the fit and proper requirements and the regulatory reference rules.

The chart below shows how the annual cadence differs across the main population an SM&CR firm has to keep on top of.

Regulatory references and criminal records checks

Fitness and propriety cannot be assessed on the candidate's word alone. SYSC 22 requires firms to obtain regulatory references when planning to appoint someone to a senior management function or certification function. A firm getting a reference must request it from every employer who has employed the individual in the relevant roles during the past six years, using the mandatory template in SYSC 22 Annex 1. The firm giving a reference must disclose all information of which it is aware that it reasonably considers relevant to an assessment of whether the person is fit and proper.

The six-year period runs through the regime. In general there is a six-year limit on what must be disclosed under the main SYSC 22 disclosure rules, and where a firm no longer employs a person, the obligation to update a reference ends six years after that person ceased to be employed. Serious misconduct sits outside that six-year cut-off and can still require disclosure.

For senior managers, criminal records checks are a distinct requirement. The firm must register with the Disclosure and Barring Service (DBS) in England and Wales, or the equivalent agencies in Scotland and Northern Ireland, and obtain a criminal records check as part of each SMF application. If the firm has not obtained a check when it applies, the application may be rejected unless an exemption applies under SUP 10C.10.16. The firm must disclose spent and unspent convictions and cautions unless the conviction or caution is protected, and give enough information to support any disclosure.

Running an annual fitness and propriety assessment

A defensible annual assessment follows a consistent, evidenced process for every individual in scope. The aim is to be able to show, for each person, what was checked, what was found, how it was weighed against the three FIT factors and why the firm reached its conclusion. Consistency matters as much as depth: applying the same steps to everyone reduces the risk of overlooking a red flag or treating similar cases differently.

The steps below set out a workflow that maps to the FIT factors and the SYSC 22 reference obligations. Firms that manage the cycle in a single system can trigger reviews automatically and hold the evidence in one place, so nothing slips past its annual review date.

Conclusion

Fitness and propriety is where the SM&CR turns from principle into practice. The three FIT factors give firms a clear structure: honesty, integrity and reputation; competence and capability; and financial soundness. Applied consistently and supported by regulatory references and, for senior managers, criminal records checks, they let a firm reach and defend a judgment about whether an individual should hold a regulated role.

The regime rewards firms that treat assessment as an ongoing discipline rather than an appointment-day formality. Certification staff must be reassessed at least annually, references must be sought and kept current within the six-year framework, and every decision needs an evidence trail. Firms that want to see how a single platform can run the whole cycle, from scoping to certification, can request a demo to walk through it in practice.

Frequently asked questions