You must carry out the necessary checks and due diligence before sending Approved Persons applications, so you can respond to questions or scrutiny.
Due diligence
Good practice
Examples of good practice that meet our expectations include:
- Checks of relevant information concerning a candidate’s fitness and propriety in the public domain and raising questions with the candidate to ensure risks are identified. Giving us the results and descriptions of any information that may be relevant to our assessment.
- An in-depth review of the candidate’s competence and suitability for the role. Where necessary, this may include testing the candidate’s competency with measurable training and the development of a remedial plan to deal with gaps.
- Evaluating the candidate’s employment history and reasons for leaving each role, clarifying products and types of customers the candidate has been involved with and any risks which may arise for the future.
- Checks of a candidate’s previous and current company directorships and verification against Companies House and overseas records where available.
- Assessing whether the candidate has the capacity and experience to perform the role you’re seeking approval for.
- Getting a standard Disclosure and Barring Service (DBS) check where appropriate.
Areas for improvement
Some examples of where we have concerns and would like to see improvements include:
- Firms relying on us to identify the risk of appointing a candidate from our due diligence and using our process as a way of forming decisions on an applicant. This reflects poorly on the competency of the principal firm.
- Firms submitting and not providing additional explanatory information when the candidate has been the director of an insolvent business or has had historical financial difficulties (such as County Court Judgments, Individual Voluntary Arrangements or Debt Management Plans).
- Firms not adequately assessing complaints about the candidate, for example, complaints that have arisen as part of the candidate conducting high risk business, such as defined benefit pensions transfers.
Making fitness disclosures
We expect you to identify and disclose all information that might be relevant to an assessment of the candidate’s fitness and propriety.
If something is missing from your assessment of the candidate, we consider due diligence to be incomplete and we will challenge you.
We take non-disclosure very seriously and may view it as evidence of dishonesty or lack of integrity.
Good practice
Examples of good practice that meet our expectations include:
- Firms providing full explanations if the answer is 'yes' to a candidate’s fitness and propriety questions. This includes explaining the process the principal has been through to check the accuracy and completeness of the information provided.
- Firms explaining how any identified risks have been mitigated, for example, through testing, training and additional monitoring and oversight.
- Firms explaining a termination or disciplinary in relation to a candidate’s previous role and why they believe the candidate’s conduct or competence is of a high enough standard to not pose a risk in the future. Examples of mitigating steps we’ve seen include a review of the candidate’s existing work and the introduction of enhanced monitoring.
Areas for improvement
Some firms cannot demonstrate that they have effective governance and controls. Examples of where submissions could be improved include:
- Firms failing to disclose that they have previously applied for direct authorisation for Part 4A permissions and withdrew their application because they could not meet the regulatory standards. Even where firms have disclosed that they have applied previously and withdrew because of concerns, they have failed to say how they have enhanced their business model or systems and controls to address our original concerns.
- Firms answering ‘yes’ to a candidate’s fitness and propriety questions, describing checks that have uncovered adverse information, but failing to explain why they now deem the candidate suitable and how they will ensure effective supervision is in place.
- Firms failing to disclose that a candidate’s conduct is the subject of ongoing litigation, or where a disciplinary hearing or a court decision is pending.