FIT Module Criteria, the SMCR Annual Assessment, and What Firms Must Evidence

The Fit & Proper Test is the foundation of personal accountability across UK financial services. Set out in the FIT module of the FCA Handbook and integrated across the Senior Managers and Certification Regime, the test determines who can hold a Senior Management Function, who can be certified for a Significant Harm Function, and who can act as an approved person more broadly. The test applies at three points: when an individual is first proposed for a role; on an annual basis throughout their tenure; and at any point where material change makes a fresh assessment necessary. Firms that fail to apply the test substantively expose both the individual and the firm to FCA enforcement risk.

This guide explains how the Fit & Proper Test actually works in practice — the three pillars set out in FIT, what the FCA expects firms to evidence, the operational reality of the annual assessment cycle, and what FD Capital sees during senior placements where Fit & Proper considerations are central. It also covers the recruitment dimension — how candidates with adverse history can still be placed where the firm has applied the test substantively, and what hiring boards need to do to support that.

What’s missing from most online explanations is the practical evidence dimension. The criteria are clearly described in the Handbook; what’s harder to find is what good Fit & Proper documentation looks like — and what the FCA actually examines during supervisory dialogue. That’s the gap this guide fills.

Where the Fit & Proper Test Comes From

The Fit & Proper Test is set out in the FIT module of the FCA Handbook. The framework operates across multiple regulatory contexts:

SMF approval applications — every Senior Management Function appointment requires the firm and the FCA to satisfy themselves that the candidate is fit and proper. See our Senior Managers Regime Guide
Annual certification — every certified person must be assessed annually as fit and proper. See our Certification Regime Guide
Approved persons applications — for roles that remain under the historic approved persons regime in specific contexts
Authorisation applications — directors, senior managers and controllers of newly-authorised firms must be assessed as fit and proper. See our How to Become FCA Authorised Guide
Continuing assessment — the firm has an ongoing obligation to satisfy itself that approved and certified individuals remain fit and proper, with material changes reportable to the FCA

The substantive criteria are the same across all of these contexts — what differs is who applies the test (FCA vs firm), the documentation requirements, and the consequences of failure.

The Three Pillars of FIT

The FIT module identifies three pillars against which fitness and propriety are assessed: honesty, integrity and reputation; competence and capability; and financial soundness. Each is examined separately, and an adverse finding under any pillar can render an individual not fit and proper.

Pillar 1: Honesty, Integrity and Reputation

The first pillar examines whether the individual has a record consistent with the standard expected of a senior person in financial services. The matters considered include:

Convictions for offences (criminal record), with particular focus on offences involving dishonesty, fraud, or financial services activity
Civil judgments, particularly those involving fraudulent or dishonest conduct
Regulatory action against the individual personally (by the FCA, PRA, or international regulators)
Regulatory action against firms the individual has led, where the individual was substantively involved
Disciplinary action by professional bodies (ICAEW, ACCA, Law Society, etc.)
Contentious involvement in insolvencies, including disqualifications and civil claims
Refusal of authorisation, removal of approval, or other regulatory consequences in the candidate’s history
Evidence of dishonesty in the candidate’s professional or personal conduct

Pillar 2: Competence and Capability

The second pillar examines whether the individual has the skills, experience, training and other competencies needed for the specific role. The standard is contextual — what is required for an SMF1 CEO is different from what is required for a certified investment adviser.

Matters considered include:

Relevant professional qualifications (typically ICAEW, ACCA, CIMA for finance roles; CISI, CFA for investment roles; ACIB for banking roles)
Years of relevant experience in similar roles or similar firms
Specific technical knowledge required for the role (regulatory framework, sector specifics, product knowledge)
Continuing professional development
Performance in previous roles, including any patterns of performance issues
Leadership capability for senior roles
Sector match between candidate experience and the role

Pillar 3: Financial Soundness

The third pillar examines whether the individual is in a financially sound position. The threshold is reasonable rather than perfect — historical financial difficulties are not automatic disqualifications but require disclosure and appropriate context.

Matters considered include:

Personal bankruptcy history, including current and historical bankruptcies, IVAs, and similar arrangements
County court judgments and other adverse credit findings
Tax compliance history
Current financial position relative to commitments
Any pattern of financial difficulty that might affect the individual’s judgment in the role

How the Test Operates at Different Stages

Initial assessment for SMF approval

For SMF appointments, the firm must conduct its own Fit & Proper assessment before submitting Form A to the FCA. The firm’s assessment is documented and forms the basis of the application. The FCA conducts its own assessment as part of the approval process — including:

Review of the firm’s documented assessment
Independent verification of key disclosed matters
Cross-reference against the FCA’s own records of the individual
Direct interview of the candidate (in some cases, particularly for first-time SMFs or where there are concerns)

Annual fit and proper assessment

For SMFs and certified persons, the firm must reassess fit and proper status at least annually under the Certification Regime extended to SMFs. The assessment typically includes:

Refreshed background checks (criminal record, credit history, regulatory history)
Documented internal performance and conduct review
Verification that disclosed material has not changed
Manager assessment of continuing capability and integrity
Senior governance attestation (typically board for SMFs, senior management for certified persons)

Trigger-based reassessment

Beyond the annual cycle, fit and proper status must be reassessed when material events occur:

Criminal charges or convictions
Civil claims involving dishonesty
Bankruptcy or significant financial difficulty
Regulatory action against the individual
Internal conduct breaches
Material changes to the individual’s role or responsibilities

Where reassessment identifies that the individual is no longer fit and proper, the firm must take appropriate action — including removing the individual from the SMF or certified role, and notifying the FCA promptly. See SUP 15 notification rules.

The “Reasonable Period” Standard

The FIT criteria don’t impose a permanent disqualification for any specific historical issue. The standard is whether, looking at the individual’s overall history and current circumstances, they are fit and proper for the specific role they’re being assessed for. A historical issue may be relevant but not disqualifying if:

Sufficient time has passed since the issue arose
The individual has demonstrated changed conduct since the issue
The issue is not directly related to the current role
The firm has taken substantive steps to mitigate ongoing risk

What constitutes “sufficient time” depends on the issue. A historical regulatory finding for a junior compliance role is treated differently from a recent finding for a senior role. Spent convictions under the Rehabilitation of Offenders Act may no longer require disclosure for some employment purposes but typically must still be disclosed for FIT purposes.

Documentation — What Good Fit & Proper Files Look Like

Strong Fit & Proper assessment documentation typically includes:

Identity verification — passport or equivalent, address verification, identity matched against application
Self-disclosure questionnaire — comprehensive coverage of the FIT criteria with substantive questions, signed by the candidate
Background checks — criminal record check (DBS or equivalent), credit check, sanctions screening, adverse media check, regulatory history search
Regulatory references — under the SYSC 22 framework (see our Regulatory References Guide)
Professional qualification verification — directly with the awarding body where appropriate
Employment verification — substantive reference checking with previous employers
Internal assessment — documented assessment by the recruiting manager and/or the relevant SMF
Approval record — formal approval at the appropriate seniority level
Annual review records — for ongoing certification and SMF status

The documentation is retained for FCA inspection and is examined during supervisory reviews. Files that consist of standard HR onboarding documentation without substantive Fit & Proper-specific content are typically flagged.

The Self-Disclosure Discipline

The most consequential single document in any Fit & Proper file is typically the self-disclosure questionnaire. The FCA’s view is that candidates have a positive obligation to disclose anything material to the assessment — and that questionnaires that do not adequately probe the FIT criteria undermine the assessment’s integrity. Strong questionnaires ask specific, substantive questions covering each pillar, with space for narrative explanation of disclosed matters. Weak questionnaires that ask only “have you ever been…” with yes/no responses fail the substantive standard.

Adverse History — What’s Disqualifying and What Isn’t

One of the most common questions in senior recruitment is what level of historical adverse matter is disqualifying. The honest answer is: it depends. The FIT framework is judgment-based, with the relevant factors including:

What’s typically disqualifying

Recent (within 5 years) convictions for offences of dishonesty, fraud, or financial services-related conduct
Recent (within 5 years) regulatory action involving findings of dishonesty
Current bankruptcy or undischarged bankruptcy
Current disqualification as a director
Demonstrably ongoing pattern of conduct issues

What’s typically manageable with appropriate context

Historical (5+ years) convictions or regulatory findings, with demonstrated changed conduct
Past financial difficulties that have been resolved
Single conduct rule findings from previous employment, with appropriate context
Spent convictions for non-financial-services offences
Civil judgments unrelated to dishonesty

What requires substantive case-by-case analysis

Historical regulatory findings that didn’t involve dishonesty
Disciplinary action by professional bodies
Contentious involvement in insolvencies of previous employers
Multiple smaller historical issues that combine to a pattern
Adverse references that the candidate disputes

For the recruitment context, candidates with adverse history can be successfully placed — but they need to disclose proactively early in the process, the firm needs to apply the FIT framework substantively, and the documentation needs to evidence the substantive analysis. See our Regulatory References Guide for the reference dimension.

Sector-Specific Application

The FIT framework applies uniformly but the practical application varies by sector:

Wealth management and investment firms

Investment-sector FIT focuses heavily on competence (investment qualifications, MIFIDPRU/AIFMD knowledge), customer-facing conduct history, and sector-specific experience. The “competent advisor” requirements layer on top of FIT for advisory roles.

Banks and credit institutions

Banking FIT operates under joint FCA/PRA approval for SMF roles. Both regulators conduct their own assessments. Sector-specific knowledge expectations are extensive.

Payments and e-money firms

Payments FIT focuses on PSR/EMR knowledge, fintech sector experience, and increasingly on technology and operational resilience expertise given the FCA’s focus on the sector.

Cryptoasset firms

Crypto FIT is administratively complex given the FCA’s particular caution with the sector. Fit & Proper assessment for crypto firm SMFs has historically been more rigorous, with extended timelines and more probing questions.

Common Fit & Proper Pitfalls

Self-disclosure questionnaire weakness. Questionnaires with vague or yes/no questions that don’t probe the substantive matters required by FIT.

Reliance on background checks alone. Background checks identify what’s on public records — they don’t substitute for substantive assessment of competence and capability.

Inadequate annual reassessment. Annual assessments operating as administrative date refreshes rather than substantive reassessment of continuing fitness.

Trigger-based reassessment failures. Material events occurring without prompting fresh assessment.

Missed disclosures during recruitment. Candidates with adverse history not disclosing proactively, with the issue surfacing later in process and derailing what might have been workable placements.

Inadequate context for adverse matters. Where adverse matters are disclosed, files that don’t capture substantive context (what happened, what changed, what mitigation is in place) make the firm’s judgment harder to defend.

Settlement agreement weakness. Settlement agreements that try to prevent disclosure of conduct findings — these don’t override the SYSC 22 reference obligation.

Senior management approval that’s pro-forma. SMF approvals signed off based on summary papers without substantive engagement with the underlying assessment.

FIT and the Recruitment Process

From FD Capital’s experience, the FIT framework affects senior recruitment in three specific ways:

Candidate disclosure timing

Candidates with adverse history have a strong interest in disclosing proactively at first interview. Discovery during reference checking after offer typically derails placements that might have been workable with earlier disclosure.

Firm assessment substantiation

For candidates with disclosed adverse history, the firm’s documented assessment must demonstrate substantive analysis — not just that the matter was “considered”. This is particularly important when the FCA reviews the application or the matter surfaces later.

Reference checking depth

Strong reference checking goes beyond the mandatory SYSC 22 reference exchange. Detailed conversations with previous board members, prior auditors, and senior peers from the candidate’s previous firms typically surface matters that wouldn’t appear on standard references.

For senior compliance leadership specifically, see our SMF16 Guide, which covers the SMF responsible for the firm’s overall Fit & Proper framework.

A Note from Our Founder — Adrian Lawrence FCA

The Fit & Proper Test is the foundation of personal accountability across UK financial services, and the conversations I have most often with candidates and hiring boards both come back to the same theme: the substantive analysis matters more than the documentary process. Firms that approach FIT as an HR onboarding checklist typically have weaker assessments than firms that treat it as a substantive senior management governance discipline. Candidates with adverse history are often successfully placed when both the candidate and the hiring firm engage substantively with the FIT framework — and rejected when they don’t.

The advice I give candidates with adverse history is to disclose proactively at first interview, with context. Most hiring firms can accommodate disclosed history if the underlying issues are not repeated patterns and the candidate has demonstrably learned. The advice I give hiring boards is to engage substantively with FIT — apply the criteria with judgment, document the substantive analysis, and approve at appropriate seniority. Firms that get this right typically have stronger SMF populations and stronger relationships with their FCA supervisors.

For senior compliance leadership specifically, the SMF16 holder typically owns the firm’s Fit & Proper framework. Hiring boards looking for SMF16 candidates should expect probing questions about the firm’s framework — and factor the answers into their decision. The strongest SMF16 candidates run Fit & Proper as substantive senior management governance, not administrative compliance.

At FD Capital we work on SMF and senior compliance mandates regularly, including placements where Fit & Proper considerations are central. If you are recruiting a senior role and want to discuss how to approach FIT framework application, I’m happy to have a direct conversation.

Speak to Adrian about a senior regulated firm appointment →

Adrian Lawrence FCA | Founder, FD Capital | ICAEW Verified Fellow | ICAEW-Registered Practice | Companies House no. 13329383

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The FCA Fit & Proper Test: A Complete UK Guide