What is Fitness and Propriety? The FCA SMCR Guide

What is Fitness and Propriety? The FCA SMCR Guide

Fitness and propriety is the standard the Financial Conduct Authority applies to senior individuals at FCA-regulated firms. The assessment determines whether a candidate is suitable to hold a Senior Manager Function or a Certification Function under the Senior Managers and Certification Regime. A candidate who passes fitness and propriety assessment can be approved for the role; one who fails cannot. The standard sits at the centre of the regulatory framework for senior FCA-regulated firm recruitment.

This guide sets out what fitness and propriety covers, how the assessment works in practice, what triggers concerns, and how candidates and firms can prepare for the process.

The Three Limbs of Fitness and Propriety

The FCA’s fitness and propriety framework assesses candidates against three core limbs.

Honesty, Integrity and Reputation

The first limb covers the candidate’s personal integrity and the absence of any conduct that would call their honesty into question. The assessment looks at criminal convictions, civil judgments, regulatory enforcement actions, and any other matters that bear on the candidate’s trustworthiness. The standard is high — the FCA wants senior managers at regulated firms to be individuals whose personal integrity is beyond question.

Specific matters the FCA examines include any criminal convictions (particularly involving dishonesty, financial misconduct, or violence); any FCA, PRA, or overseas regulator enforcement actions against the candidate or firms they have led; any civil judgments involving fraud or dishonesty; any directorships in firms that have entered insolvency in concerning circumstances; any disciplinary action by professional bodies; and any other matters that could damage public confidence in the regulated sector.

Competence and Capability

The second limb covers the candidate’s technical and professional competence for the specific role. The assessment looks at the candidate’s qualifications, professional experience, and demonstrated capability to discharge the responsibilities of the Senior Manager Function in question.

Specific matters the FCA examines include relevant professional qualifications (ACA, ACCA, CFA, or sector-equivalent); years of relevant experience at appropriate seniority; track record at previous senior roles; specific technical knowledge required for the role (prudential framework for bank CFOs, Solvency II for insurance CFOs, CASS for asset management); leadership experience commensurate with the role; and any patterns of poor performance or removal from previous senior roles.

Financial Soundness

The third limb covers the candidate’s personal financial position. The assessment looks at whether the candidate has financial difficulties that could compromise their independence of judgement or expose them to inappropriate pressure.

Specific matters the FCA examines include any personal bankruptcy proceedings or arrangements; any County Court Judgments or other adverse credit history; any material outstanding debts; any patterns of financial mismanagement; and any other circumstances that could create financial vulnerability inappropriate for a senior regulated role.

When Fitness and Propriety Assessment Applies

Fitness and propriety assessment applies in three distinct contexts.

Form A approval at the start of a new SMF appointment. Every new Senior Manager Function appointment requires FCA approval through the Form A process, which includes fitness and propriety assessment. This is the most familiar context for fitness and propriety.

Annual certification by the firm. Firms must annually certify that their Certification Function holders (including many senior risk-takers, client-facing roles, and material risk takers) continue to be fit and proper. The firm makes the assessment internally rather than the FCA assessing each individual, but the standard is the same.

Ongoing reassessment when circumstances change. If a Senior Manager’s circumstances change in a way that bears on fitness and propriety — for example a criminal investigation, financial difficulty, or significant professional misconduct — the firm must reassess. The FCA may also reassess if matters come to its attention.

How the Assessment Works in Practice

At the Form A stage the firm submits a comprehensive application covering the candidate’s career history, qualifications, fitness and propriety attestations, and supporting documentation. The candidate completes detailed personal declarations covering criminal history, regulatory history, civil judgments, professional conduct, and financial circumstances.

The FCA reviews the application against the published fitness and propriety standards. Most applications are decided on the documentation; some involve information requests from the FCA where additional clarity is needed; a small number involve candidate interviews where the FCA has specific questions.

Decisions typically run in one of three directions. Approval — the candidate can take the role on the proposed terms. Conditional approval — the candidate can take the role subject to specific conditions (additional training, restrictions on certain activities, additional reporting). Refusal — the candidate cannot take the role.

Outright refusals are rare at senior level but possible where the candidate’s profile raises serious concerns the FCA cannot reconcile with the regulatory standard.

What Triggers Fitness and Propriety Concerns

Several patterns trigger more careful FCA scrutiny during fitness and propriety assessment.

Prior regulatory engagement at firms with subsequent issues. Candidates who have held senior roles at firms that have subsequently been subject to enforcement action, supervisory criticism, or significant operational failures face additional scrutiny. The assessment considers whether the candidate’s actions contributed to the issues or whether they were genuinely outside the candidate’s responsibility.

Departures from previous roles in concerning circumstances. Candidates who have left previous senior roles in circumstances suggesting concerns about their conduct or performance face additional scrutiny. The FCA looks at the circumstances of the departure, the firm’s view of the candidate’s conduct, and the candidate’s own account.

Adverse credit history or financial difficulty. Material adverse credit history, prior personal bankruptcy, or current financial difficulty creates concern under the financial soundness limb. The assessment considers whether the circumstances are explained, whether they have been resolved, and whether they create ongoing risk.

Limited relevant experience for the specific role. Candidates whose experience does not clearly align with the specific Senior Manager Function being applied for face additional scrutiny under the competence limb. The assessment considers whether the candidate’s background provides the technical and leadership capability the role requires.

Conduct concerns from previous firms. If previous firms have raised concerns about the candidate’s conduct through formal whistleblowing channels or in regulator engagement, this typically surfaces during the assessment and prompts additional scrutiny.

How Candidates Should Prepare

Candidates can prepare for fitness and propriety assessment in several ways.

Honest self-assessment before any application. Candidates should review their own career history, regulatory engagement, financial position, and any other matters that could bear on fitness and propriety before committing to a Form A submission. Issues that surface mid-process can derail an application; issues identified early can typically be explained and managed.

Clear documentation of prior issues. Where prior issues exist — regulatory engagement, departures, financial difficulty — candidates should prepare clear, documented explanations. The FCA looks at the candidate’s account of these matters as well as the underlying facts; a clear, honest, and well-evidenced explanation typically helps the assessment.

Referees who can speak to the role-relevant capability. Strong references from credible sources — previous board chairs, CEOs, regulators where appropriate — help the competence and capability assessment. Referees should be able to speak to the specific capabilities the new role requires, not just to the candidate’s general qualities.

Up-to-date professional development. Candidates whose qualifications and continuing professional development are current and clearly documented support the competence assessment. Candidates whose qualifications are dated or whose CPD record is thin face questions about ongoing competence.

How Firms Should Prepare

Firms appointing senior individuals to SMF roles have their own responsibilities under the fitness and propriety framework.

The firm must conduct its own fitness and propriety due diligence before submitting Form A. This includes verifying the candidate’s qualifications, references, regulatory history, and any other matters relevant to the assessment. Search firms supporting the recruitment typically conduct initial due diligence as part of the shortlist preparation; the firm itself conducts more detailed due diligence at the offer stage.

The firm must construct the role’s Statement of Responsibility clearly and consistently with the candidate’s actual responsibilities. The Statement of Responsibility shapes the FCA’s view of what the candidate will be accountable for, which in turn shapes the competence assessment.

The firm should engage early with its regulatory supervisors at larger or more closely supervised firms. Some appointments benefit from pre-submission engagement with the lead supervisor to surface any concerns before formal application.

What Happens if Fitness and Propriety Concerns Arise During an Existing Role

Senior managers who develop fitness and propriety concerns during their tenure face a structured process. The firm must reassess the individual against the framework. Depending on the nature and severity of the concerns, the firm may need to remove the individual from the SMF role, notify the FCA, or both.

Common triggers for in-role fitness and propriety concerns include criminal charges, civil proceedings involving dishonesty, regulatory action by other regulators, significant operational failures within the individual’s area of responsibility, or evidence of conduct concerns that come to light during the role.

The framework imposes obligations on the firm to notify the FCA promptly where material concerns arise. Failure to notify can itself constitute regulatory breach by the firm and by other Senior Managers with relevant accountability.

The Relationship with Other Regulatory Tests

Fitness and propriety sits alongside other regulatory tests that apply to senior individuals.

The Threshold Conditions apply to the firm itself and include requirements that the firm’s management is suitable. The fitness and propriety of individual Senior Managers contributes to the firm’s overall Threshold Conditions compliance.

The Conduct Rules apply to most regulated firm employees and set standards of conduct. The Conduct Rules and fitness and propriety overlap — serious Conduct Rule breaches typically affect fitness and propriety standing.

The Senior Management Conduct Rules apply specifically to Senior Managers and include additional requirements around taking reasonable steps to ensure proper firm management. Senior Management Conduct Rule breaches affect both fitness and propriety standing and individual regulatory liability.

The Certification Regime requires firms to certify annually that Certification Function holders remain fit and proper. The certification standard mirrors the Senior Manager fitness and propriety standard but the assessment is made internally by the firm rather than externally by the FCA.

What This Means for Senior Recruitment

Three implications follow for boards and candidates engaged in senior FCA-regulated firm recruitment.

Fitness and propriety is part of the brief, not an afterthought. The brief at SMF level should articulate the specific fitness and propriety considerations relevant to the role. The candidate pool should be assessed against these considerations from the start, not only at the offer stage.

Search firms supporting SMF recruitment should understand the framework. A search firm that doesn’t understand fitness and propriety in detail can shortlist candidates whose backgrounds will struggle through assessment, costing the firm months. The search firm’s familiarity with the framework is part of why retained engagement at senior FCA roles is the standard.

Pre-submission due diligence prevents late-stage surprises. Firms that conduct meaningful fitness and propriety due diligence before Form A submission rarely face refusals. Firms that submit applications based on incomplete due diligence sometimes do. The investment in pre-submission due diligence is small relative to the cost of an unsuccessful application.