30 April, 2018
In many industries, it is a requirement that certain individuals performing regulated activities are, and remain, fit and proper.
For example, these requirements will apply to certain individuals who are subject to the oversight of financial services regulators such as the Hong Kong Monetary Authority, the Securities and Futures Commission (SFC) or the Insurance Authority. Assessing whether an individual is fit and proper however, is not always straightforward. Issues which, on their face, may not seem to be compliance risks could in fact be so when viewed through the lens of the fit and proper test.
What does it mean to be ‘fit and proper’?
Most regulators issue their own guidance as to how they will assess whether a particular individual satisfies the fit and proper criterion, and it is important for individuals and employers to familiarise themselves with the guidelines that apply to them.
The SFC, for example, has issued Fit and Proper Guidelines, which provide guidance on matters that are likely to give rise to concerns about the fitness and properness of a licensed person. If the SFC is not satisfied that an individual is a fit and proper person for the purposes of conducting regulated activities, the SFC is obliged to refuse an application by that person to be licensed or (if the person is already licensed) the SFC may suspend or revoke such licence. The consequence of an adverse finding, therefore, can have a serious impact on an individual’s ability to work in their chosen profession.
The SFC guidance states that a person can be deemed not to be fit and proper if, among other criterion:
- they are (or have recently been) bankrupt, but also if they have failed to meet a judgment debt or are subject to receivership/similar proceedings;
- they have been convicted of a criminal offence or are the subject of unresolved criminal charges which are of direct relevance to fitness and properness;
- they have been censured, disciplined or disqualified by any professional or regulatory body in relation to any trade, business or profession (not just the trade in which they currently work);
- they have been refused or restricted from the right to carry on any trade, business or profession for which a specific licence, registration or other authorization is required by law; or
- they have been a director, substantial shareholder, or involved in the management, of a corporation or business that was wound up (otherwise than by a solvent members’ voluntary dissolution) or was otherwise insolvent or had a receiver or administrator appointed, however described.
Recent examples of action taken against professionals deemed not to be fit and proper
The SFC recently banned Chan Wai Nun from re-entering the industry for six months for forwarding a list of current clients on to himself at his new employer. Here a misconduct issue arising from a data protection breach was found to lead to a revocation of his license.
The SFC recently banned Abbie Yip Ka Ying from re-entering the industry for 18 months for concealing a mistake she had made on a trade. Yip’s dishonest acts called into question her fitness and properness to be a regulated person.
The Court of First Instance recently confirmed in Re “A” [2017] HKCU 1542 that a prior criminal conviction for indecent assault meant that the applicant was not ‘fit and proper’ to be admitted and enrolled as a barrister of the High Court of Hong Kong.
An example from the UK was recently seen where a lawyer (who is required to conduct themselves honestly and with integrity) was struck off for evading a train fare. This was held to make him not fit and proper to continue practicing his regulated activity.
Key takeaways
For employers operating in sectors where employees need to satisfy fit and proper requirements, employers must of course have in place adequate processes to deal with situations where an employee’s fitness and properness is called into question.
This will include internal decision-making policies about assessing employees’ fitness and properness and the process for making reports (where necessary) to the relevant regulator. Issues relating to employee behaviour are often raised initially with HR. Given the broad manner of issues which may be relevant in determining whether an individual is ‘fit and proper’, it is critical to ensure the following:
- HR processes are sufficient to identify potential concerns with a prospective employee’s fitness and properness at the recruitment stage, including through criminal record and other background checks.
- There is adequate monitoring of the continuing fitness and properness of employees throughout the course of their employment including an awareness of when issues should be escalated to compliance.
- Issues traditionally viewed as ‘HR’ or ‘behavioural’ issues are scrutinised through the lens of the ‘fit and proper’ test, especially where there is an element of dishonesty. In particular, it is critical that those tasked with receiving and investigating allegations relating to employee behaviour, are aware of and able to identify what conduct may potentially impact whether an individual is ‘fit and proper’.
- Training is provided to relevant employees to ensure they are aware of and follow the procedures in place. This is especially important as firms have a self-reporting obligation to the SFC and delays in reporting can lead to significant fines and criticism.
For further information, please contact:
Gareth Thomas, Partner, Herbert Smith Freehills
gareth.thomas@hsf.com
