In light of the recent findings in the financial services royal commission, it’s now more important than ever for regulated businesses in the finance sector to demonstrate that their executives and staff are honest and responsible. To do this, companies must comply with regulators’ requirements to prove that staff are fit and proper to carry out their duties.
While this may seem like a daunting process the task is easy enough to tackle, as Rhonda Bell, Warwick Credit Union Compliance Officer, explains. Warwick Credit Union’s 40-strong staff cohort – including the CEO, CFO, lending manager, compliance officer and directors – must all be deemed fit and proper to maintain its license obligations.
What is fit and proper?
Under Australian Securities and Investment Commission (ASIC) rules, before the regulator can grant an Australian Financial Services (AFS) License to the business in question, it has to be satisfied that its staff are fit and proper to undertake credit activities.
According to ASIC’s definition, a fit and proper person must be able to demonstrate competency in operating a credit business, which means they have the appropriate knowledge, skills and experience to discharge their obligations. They must show that they are of good character by displaying diligence, honesty, integrity and judgement. They must also be neither disqualified by law from performing a credit role nor have a conflict of interest to perform their role.
These requirements are integral to the correct conduct of Australia’s financial system.
“The checks and balances ASIC and APRA require when verifying people are fit and proper are essential given the important work we do approving loans and managing a financial services business.
“We’re also a member organisation, so it’s critical for management and the board to act with integrity,” explains Bell.
Who must be deemed fit and proper?
The criteria that determine who constitutes a fit and proper person are outlined in the Australian Prudential Regulatory Authority’s (APRA’s) Prudential Standard APS 520 Fit and Proper.
The standard requires relevant businesses to develop and maintain a fit and proper policy and obliges regulated businesses to assess staff’s credentials and credibility – both when they are appointed and annually. It also sets out the different roles in a licensed business for which candidates and staff are required to be assessed as fit and proper.
The verification process is determined by the nature and seniority of the role. For instance, Bell has been with Warwick since 1985 and this experience is considered when assessing whether she is fit and proper to continue being its compliance officer.
By contrast, to be satisfied the business’s accountants are fit and proper to hold their positions, ASIC needs to be able to verify they have the appropriate qualifications and undertake ongoing professional development to keep their knowledge current.
Each year, regulated businesses must identify all the individuals who are required to be assessed as being fit and proper. Business licensees must also specify the people in the business who are designated as responsible managers. These are the people who the business deems to be competent to engage in credit activities.
ASIC requires information about their role, past conduct and knowledge, and experience. Each person must complete a statement of personal information that includes all the evidence to prove they are fit and proper, such as credit and police checks.
How to make complying with fit and proper simple
Having only recently been given the responsibility for ensuring the business meets its fit and proper responsibilities, Bell relies on third party background screening provider, CVCheck, to support her work.
Collating all the directors’ information used to be time-consuming and difficult. But now with CVCheck, all an individual has to do is create an account and upload their information onto the portal. It simplifies the process; there’s no need to run around and all the information is collected in a central repository. It’s great!” says Bell.
Bell uses CVCheck to order police and credit checks, as well as verify employment information, qualifications and references. The service can also be used to vet business interests, and visa and residency status.
Once Warwick Credit Union has collected the above information, each person’s declaration and supporting documents are verified by the board’s nomination committee before being supplied to ASIC and APRA.
“It might sound complex, but it isn’t!” Bell says.
Key takeaway
Regulatory compliance is a critical part of every financial services business and getting it wrong can have serious consequences – worst-case scenario a firm could lose its Australian Financial Services license.
By understanding the requirements and using a third-party background screening service where necessary, you’ll ensure your business’s licensees have all the information they need to meet their fit and proper obligations.
This takes the hassle out of compliance, leaving you to focus on your business.
