Understanding the Importance of FCA Screening Checks for Financial Services

Numerous individuals in the UK require an FCA Screening checks. The primary function of the Financial Conduct Authority (FCA) is to regulate the financial services sector. Companies within this sector that are regulated by the FCA must comply with the rules established by the regulator, one of which is the Fitness and Propriety check.

This check involves a thorough examination of the backgrounds of senior managers and directors to ensure the safety of consumer funds. These checks are implemented to regulate the conduct of organizations operating within financial services and markets.

Individuals occupying specific roles, known as controlled or Senior Management Functions (SMF), must successfully pass the fitness and propriety test before assuming their positions.

The FCA Check Regime

The Financial Conduct Authority (FCA), formerly known as the Financial Services Authority, has established a standard test to ensure that individuals handling money and working within financial services firms on behalf of others are trustworthy. The FCA is an independent public body.

The Fitness and Propriety test evaluates the background of potential employees to minimize risk to the public and the company.

There are three primary elements considered by the FCA:

Honesty – This includes reviewing criminal records and assessing the individual's transparency in responding to inquiries.

Competence and Capability – This assesses whether the individual possesses the necessary experience and training for their role.

Financial Soundness – This evaluates the risk of the individual engaging in theft or fraud due to financial distress.

What is Included in an FCA Background Check?

Firms are responsible for conducting their own due diligence before submitting an application to the FCA for an individual to become an approved person. Generally, every application must include certain standard elements.

Employers must ensure they are satisfied with:

• Regulatory references – Has the individual previously been an approved person?

• Qualification certificates – Are their qualifications valid and appropriate?

• Credit checks – Do they meet the financial soundness criteria?

• Criminal records checks – Are there any unspent convictions that would render them unsuitable?

• Directorship checks – Are they a director of a company that would be incompatible?

• Employers must also evaluate the candidate’s engagement with the process and their level of openness and honesty.

Which Companies Need to Use Background Checks?

Any company in the financial services sector regulated by the FCA is required to adhere to the approval scheme's rules.

However, even if a company is unregulated but handles customer assets, implementing aspects of the scheme is advisable to protect both the company and its customers.

Typically, companies that need to conduct FCA background checks include:

• Firms providing payment services

• Consumer credit firms

• E-money and money transmission services

• Insurance and brokerage firms

• Home finance firms

• Investment advisors or funds

• Co-operative societies

• Sale and rent back firms, including home equity businesses

• Does an Adverse Result Cause Issues?

• The FCA background checks do not operate on a 'pass or fail' basis.

Each case is evaluated on its own merits.

For instance, it would be unreasonable to prevent someone who committed shoplifting as a teenager from working in financial services if they are now in their 50s with a successful career. Conversely, an individual with multiple fraud convictions should not be allowed access to customer funds.

The main factors to assess include:

• The circumstances surrounding the adverse result

• The time elapsed since the offense

• The age of the individual at the time of the offense

• Their honesty about the situation