Does the FCA carry out background checks?
The Financial Conduct Authority (FCA) was created as part of the replacement of the Financial Services Authority (FSA). Alongside the Prudential Regulation Authority and the Financial Policy Committee, they are responsible for setting standards in the financial sector.
The FSA was replaced due to its lack of effectiveness in dealing with the events that precipitated the 2008 financial crash. The FCA was created to be a more effective and trustworthy regulator. Something that, so far, it has achieved.
Background checks are a big part of the regulations set by the FCA. They are a risk-reduction tool that help establish trust in an individual. But do the FCA conduct the checks?
Do the FCA Carry out Background Checks?
While the FCA probably conduct checks on staff they recruit internally, they do not carry out background checks for the firms they regulate. FCA regulated firms are responsible for carrying out the necessary background checks on their staff.
These checks are needed so that firms can demonstrate their staff are ‘fit and proper’ under the FCA’s Senior Management and Certification Regime (SMCR). These checks can be done through specialist firms like Personnel Checks.
The Senior Management and Certificate Regime (SMCR)
The SMCR replaced the Approved Persons Regime back in 2015. The point of the SMCR is to make individuals within regulated firms more accountable for their conduct and competence. This regime is intended to not only improve standards but improve public trust in financial institutions.
Fitness and Propriety
Under SMCR, all FCA firms have to assess their staff against the FCA’s ‘fit and proper’ test. This is a benchmark that determines whether staff are suitable to hold positions with significant control or influence within a regulated firm.
Background checks are an essential part of this test.
Background Checks and the FCA
There is only one type of background check specifically name in the FCA guidance. This is the DBS Check. Depending on what role staff fulfil under SMCR, they could need either a Standard DBS or a Basic DBS.
Other background checks aren’t necessarily named, but firms are expected to do their due diligence. FCA guidance states that there are three areas to focus on. These are:
Honesty, integrity and reputation.
Competence and capability.
Financial soundness.
Firms are expected to be able to provide evidence on how they made their decision that an employee is fit and proper. Background checks provide you with the physical evidence you need to demonstrate your compliance.
So while the FCA themselves don’t carry out background checks, they are a big part of FCA compliance. For more details on the checks you’ll need for your firm, check out the table at the bottom of this article.
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