Assessing the suitability standard for individuals seeking public positions
In the realm of anti-money laundering (AML) regulations, certain businesses and key individuals are required to undergo a 'fit and proper test' by Her Majesty's Revenue and Customs (HMRC). This vetting process is designed to ensure that those in positions of power within sectors exposed to money laundering risks meet standards of honesty, integrity, and competence to safeguard the financial system.
The fit and proper test applies to several types of businesses and individuals, including estate agents and other regulated entities operating in financial services, legal, accounting, and other sectors. The test is a crucial part of the approval process for responsible persons, typically those in senior management or control roles within these entities.
The fit and proper test assesses whether an individual is suitable to perform their role without posing a risk to the prevention of money laundering or terrorist financing. It typically includes checks on integrity and honesty, competence and capability, and compliance history. HMRC suggests that when checking for unspent convictions listed in Schedule 3 of the regulations, principals should request to see certificates following a basic Disclosure and Barring Service check (DBS).
Businesses must also undertake customer due diligence, verify the source of funds, maintain policy statements on money laundering controls, and ensure ongoing staff training. If a business or individual fails the fit and proper test, they may be refused registration or asked to stop working in their role.
For instance, a money service business owner employing a director, a manager responsible for recruitment, and a network of 10 agents must ensure that the 10 agents of the money service business, as well as their representatives, would satisfy the fit and proper test. The test may not apply to the manager responsible for recruitment if they do not monitor delivery of the policies including staff's internal compliance and delivery or carry out any supervisory activity that touches on policies, controls, and procedures that relate to anti-money laundering or counter-terrorist financing.
HMRC carries out the fit and proper test as part of the AML supervision registration process and also as part of its supervisory function after registration. There is a fee for the fit and proper test, and if a business does not pay the registration fee or the fit and proper fee, HMRC will not register the business. HMRC accepts original documents or certified copies of documents for non-UK residents.
When a new person joins a business, the business must amend its registration through its Government Gateway account and apply and pay for the new person to take the test. Accountancy service providers, art market participants, estate agency businesses, high value dealers, and letting agency businesses are subject to approval checks and should follow guidance on HMRC approval checks.
The fit and proper test is made up of three parts: Part 1 tests if an applicant or a person has an unspent conviction for a relevant offence, Part 2 considers whether there has been a consistent failure to comply with the regulations, and Part 3 looks more widely at honesty, integrity, skills and experience, financial soundness, including tax affairs.
If any applicant or person fails the fit and proper test, HMRC will not register the business. HMRC checks information against records kept by other regulatory authorities, commercial organizations, government and law enforcement agencies, and their website. A business can ask for a review or appeal a decision to refuse registration, but not if the only reason for the decision was an unspent conviction for a relevant offence.
In brief, the fit and proper test under these regulations is a vital tool in HMRC's arsenal to ensure that key individuals in businesses susceptible to money laundering risks meet standards of honesty, integrity, and competence to help safeguard the financial system from abuse.
The fit and proper test is a crucial part of the approval process for individuals in senior roles within various sectors, such as financial services, legal, accounting, and estate agents, due to their potential exposure to money laundering risks.
Should an applicant or individual fail the test, they may be refused registration or asked to cease working in their role, particularly in businesses like money service businesses, where owners and network agents must ensure that all representatives satisfy the fit and proper test.
