The Fit and Proper Test: What the Regulator Is Really Asking

There's another important part of the authorisation process that shouldn't be overlooked: the Fit and Proper Test.

Identifying somebody for an SMF position is only part of the process.

The regulator also needs to consider whether the individual is fit and proper to perform the role.

So what does that actually mean?

At a practical level, the assessment considers whether the individual has the appropriate honesty, integrity and reputation, competence and capability, and financial soundness, as applicable to the relevant regulatory requirements.

That means the recruitment process shouldn't simply ask:

"Does this person have the right job title on their CV?"

It should ask:

"Can this individual demonstrate the experience, competence and personal suitability required for the role they're being proposed for?"

This is particularly important when you're building an SMF team for a new regulated business.

A candidate might have extensive experience in financial services, but that doesn't automatically mean they are the right person for every SMF role.

Their previous responsibilities, regulatory experience, technical knowledge and the relevance of their background all need to be considered in the context of the proposed position.

We've produced a detailed guide explaining the Fit and Proper Test and what it means for regulatory approval.

It's worth understanding this before starting the recruitment process, because it changes the question from simply finding a senior executive to finding someone who is appropriate for a specific regulated responsibility.

Recruitment and Regulatory Approval

This is where the connection between recruitment and authorisation becomes particularly important.

If you're recruiting an SMF16, SMF17, chair or another senior regulated individual, you're not simply filling a vacancy.

You're potentially identifying an individual whose appointment forms part of your regulatory application and governance structure.

That means the recruitment process needs to consider the regulatory requirements from the beginning.

At SMF Capital, our SMF Recruitment Services are designed to help firms identify senior financial services professionals for regulated and senior management positions.

The objective is to combine the recruitment requirement with an understanding of the regulatory environment in which the individual will operate.

So rather than starting with a generic job description and then looking for candidates, the process can start with the firm's regulatory requirements, governance structure and the responsibilities attached to the role.

That can help create a much more focused search for the right senior individual.