ECSH45030 - The fit and proper test

The fit and proper test (F&P) is applied to Money Service Businesses (MSBs) and Trust or Company Service Providers (TCPSs) and the beneficial owners, officers and managers (BOOMs) of those businesses. Agents of MSBs and the agent’s BOOMs are also subject to the fit and proper test – although the principals have a responsibility to ensure their agents would pass the F&P test HMRC can (and does) rely on their assessments (in accordance with regulation 58(5) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017)).

The purpose of the F&P test is to ensure that BOOMs and agents are suitable persons to undertake their roles, and that the business itself is suitable to offer MSB or TCSP services.

Businesses wishing to provide MSB or TCSP services must have their application (including determination of F&P tests) approved before offering such services.  This also applies to businesses already registered for supervision within HMRC who wish to provide MSB or TCSP services – e.g. an accountant who wishes to provide TCSP services cannot do so until the business has notified HMRC of the intended change.

Being F&P is an ongoing requirement. This means that F&P determination can be reviewed by HMRC at any time.  Similarly, principals should keep their agents under review, with a particular focus on whether there has been any change that might affect their fit and proper determination.

F&P is not a status or a licence. It is non-transferable and applies only in the context of the business that the application is made. This means that an individual that has passed the F&P test as part of one business cannot carry their test over to another. If a BOOM changes their role within a business, or moves to a different one, this is a material change which should be notified to HMRC by the business in accordance with regulation 57(4) MLR 2017.  Before they can carry out their new role, the BOOM will need to undergo the F&P test again if they move to a new business and may need to undergo the F&P test if they move to a new role in the same business.  A new test will incur an additional F&P test fee.

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Who has to take the test?

For HMRC-supervised MSBs and TCSPs, the F&P test is taken as part of the process when considering the application for registration by the business. BOOMs of the business, as well as agents of MSBs and their BOOMs are also subject to the fit and proper test, further detail is provider later in this guidance.


BOOMs

‘Beneficial owners’ and ‘officers’ are defined in regulation 3 MLR 2017.

‘Managers’ are individuals who:

  • Make decisions affecting compliance and are responsible for regulated activities.
  • Are employed by the principal to oversee or manage the screening and propriety of their money service business agents.

This includes, but is not restricted to, those managers involved in the development and monitoring of anti-money laundering and counter terrorist financing policies, controls and procedures. The test also applies to staff who carry out any regulated activity, or where their activity touches on anti-money laundering or counter terrorist financing policies, controls, and procedures.

The test does not apply to other managers who are not routinely involved in the anti-money laundering and counter terrorist financing activities of the business.

The nominated officer of a business is subject to the F&P test, and depending on the person, will either be covered by the definition of ‘officer’ or ‘manager’.

The F&P test also applies to agents of MSBs and their BOOMs. Further guidance on F&P of MSB Agents is detailed later in this guidance.

How the test is applied

HMRC may contact applicants and BOOMs for further information once an initial application has been submitted. HMRC may also contact applicants directly by email, or by post.

An applicant must disclose to HMRC any issues as to why it may not be F&P and will be given the opportunity to make representations as to why the person should be considered F&P in the context of the application in which they are applying.

Regulation 88 MLR 2017 provides that knowingly or recklessly providing false or misleading material information is a criminal offence and could result in criminal prosecution.

The F&P test will apply to businesses and BOOMs that are already registered to provide other services, such as Accountancy Service Providers if they wish to begin offering MSB or TCSP services. Businesses wishing to offer MSB or TCSP services must report a material change to vary their registration.


Cryptoassets

Businesses offering cryptoasset services  must register for anti-money laundering supervision with Financial Conduct Authority (FCA) and will be subject to the F&P test. If you are dealing with a business that offers cryptoasset services, please contact EC-S policy.


F&P Test Fees

Full details of the fees payable in relation to the F&P test and registration can be found in ECSH44525.

Conducting the F&P test

The F&P Test is made up of 3 parts:

  • Part 1 - HMRC will check if a business or BOOM has an unspent conviction for a criminal offence listed in Schedule 3 MLR 2017 (or their overseas equivalents). These are known as relevant offences and include any offences with a deception or dishonesty element, such as theft or fraud.If they do, then they will automatically fail the F&P test.  Further detail on convictions can be found below in “Convictions & Decision Making”.
  • Part 2 - HMRC will consider if there has been a consistent failure by the business to comply with the MLR 2017, 2001 Regulations, 2003 Regulations or 2007 Regulations and whether there is a risk that the business may be used for money laundering or terrorist financing.This does not mean there needs to be a long history of non-compliance with any of the regulations. A single period of non-compliance could be considered to be a consistent failure to comply if there has been a failure to comply with a range of requirements under the regulations during that period which presents a risk to money laundering or terrorist financing.
  • Part 3 - HMRC will look more widely at whether the business and any of its BOOMs has adequate skills and experience and has acted and may be expected to act with probity. These aspects are further broken down into three topics as set out below.

The following aspects of the test are subjective. This means there is no threshold of failure, and the presence of one of the factors below will not mean a business or its BOOMs will automatically fail the test. F&P decisions will be made on a case-by-case basis.

In determining whether a business or BOOM is fit and proper, HMRC will have regard to all relevant matters, when considering the factors set out below, including, but not limited to:


Honesty and Integrity

An application should declare any spent convictions for offences of dishonesty, fraud, financial or tax crime or an offence under legislation relating to money laundering, companies, building societies, industrial and provident societies, credit unions, friendly societies, banking, other financial services, insolvency, consumer credit companies, insurance, market manipulation and insider dealing, whether committed in the UK or abroad. The circumstances in which spent convictions can be applied are set out in ECSH45025.

  • Whether the business or BOOM has been the subject of any adverse finding or any settlement in civil proceedings, particularly in connection with any financial business, misconduct, fraud or the formation or management of a body corporate.
  • Whether the business or BOOM has been the subject of, or interviewed in the course of, any existing or previous investigation or disciplinary proceedings, by HMRC, by other regulatory authorities (including a previous regulator), clearing houses and exchanges, professional bodies, or government bodies or agencies.
  • Whether the business or BOOM is or has been the subject of any proceedings of a disciplinary or criminal nature or has been notified of any potential proceedings or of any investigation which might lead to those proceedings.
  • Whether the business or BOOM has contravened any of the requirements and standards of HMRC or other regulatory authorities (including a previous regulator), clearing houses and exchanges, professional bodies, or government bodies or agencies.
  • Whether the business or BOOM has been involved with a company, partnership or other organisation that has been refused registration, authorisation, membership or a licence to carry out any trade, business or profession, or has had that registration, authorisation, membership or licence revoked, withdrawn or terminated, or has been expelled by a regulatory or government body.
  • Whether, as a result of the removal of the relevant licence, registration or other authority, the business or BOOM has been refused the right to carry on a trade, business or profession requiring a licence, registration or other authority.
  • Whether the BOOM has been a director, partner, or concerned in the management, of a business that has gone into insolvency, liquidation or administration while the person has been connected with that organisation or within one year of that connection.
  • Whether the BOOM, or any business with which the person has been involved, has been investigated, disciplined, censured or suspended or criticised by a regulatory or professional body, a court or tribunal, whether publicly or privately.
  • Whether the BOOM has been dismissed, or asked to resign and resigned, from employment or from a position of trust, fiduciary appointment or similar.
  • Whether the BOOM has ever been disqualified from acting as a director or disqualified from acting in any managerial capacity.
  • Whether, in the past, the business or BOOM has been candid and truthful in all their dealings with any regulatory body and whether the business or BOOM demonstrates a readiness and willingness to comply with the requirements and standards of HMRC and with other legal, regulatory and professional requirements and standards.

References to regulatory bodies or requirements should be read as including UK and overseas tax bodies, and their requirements.

References to regulatory bodies includes any bodies in the UK or overseas whose role now or in the past included ensuring compliance with any anti-money laundering law, regulation or other measure.

Competence & Capability

  • Whether they satisfy the relevant training and competence requirements in relation to the role they perform or are intended to perform.
  • Whether they have demonstrated by experience and training that they are suitable, or will be suitable, to perform the role.
  • Whether they have adequate time and other resources of any kind available to them in order to perform the role and meet the responsibilities associated with that role.

A BOOM may have been convicted of or dismissed or suspended from employment for drug or alcohol related offences. This will be considered only in relation to their continuing ability to perform the particular role for which they do, or is to be employed in.

The relevant training requirements are set out within regulation 24 MLR 2017.

Financial Soundness

  • Whether the business or BOOM has been the subject of any judgment debt or award, in the UK or elsewhere, that remains outstanding or was not satisfied within a reasonable period.
  • Whether, in the UK or elsewhere, business or BOOM has made any arrangements with their creditors, filed for bankruptcy, had a bankruptcy petition served on them, been adjudged bankrupt, been the subject of a bankruptcy restrictions order (including an interim bankruptcy restrictions order), offered a bankruptcy restrictions undertaking, had assets sequestrated, or been involved in proceedings relating to any of these.
  • Whether the tax affairs of the business or BOOM or any business or other entity owned, controlled, or managed by them, are up to date, in that declarations or returns due from them have been made by the due date. HMRC will also have regard to whether any taxes, duties, levies or similar sums due were paid by the due date. (This does not mean an individual cannot  be involved in requests for reconsiderations of rulings or decisions, appeals in respect to matters of their personal or business tax liabilities.)

HMRC will not normally require the candidate to supply a statement of assets or liabilities. The fact that a business or BOOM may be of limited financial means will not, in itself, affect their suitability to perform a role.

 

Fit & Proper Testing & Schedule 3 Convictions

Convictions & Decision Making

HMRC can be considered a judicial authority when taking into account a spent conviction when determining F&P applications.

As detailed above, if a business or any of its BOOMs have an unspent conviction for a Schedule 3 offence they will automatically fail the F&P test under Part 1.  HMRC can still consider a conviction that is spent as per the Rehabilitation of Offenders Act 1974 as part of its decision-making process when considering parts 2 and 3 of the test.

This means that a BOOM with a spent conviction of a serious nature or relevant offences such as fraud, dishonesty or money laundering can fail the F&P Test under Regulation 58(4)(b) and (c) due to the risk the business may be used for money laundering, and that the BOOM has not acted with probity, and may not act with probity in the future..

Further guidance on convictions is detailed in ECSH45025.

Decision-makers should discuss this on a case-by-case basis with their team leaders.

 

Fit & Proper Determinations where a BOOM has been arrested or charged, but not convicted

If a BOOM is charged with, or arrested for an offence under Schedule 3 MLR 2017, or another offence that may impact a F&P determination, the arrest or charging decision alone is not sufficient to make a determination on whether a BOOM is considered F&P. EC-S must take a risk-based approach and consider the risk of whether the business is being, or may be used to facilitate money laundering or terrorist financing and/or will fail to comply with regulatory obligations.

This means that decision-makers should consider the grounds and circumstances leading to the arrest or charging decision and what are the risks that the business may be used for money laundering and terrorist financing as a result. Information should be gathered from sources such as:

  • Intelligence or evidence provided by Police or other Law Enforcement Agency
  • Intelligence or information from internal Risking teams
  • Information available on cross agency systems that support an arrest of charging decision including charge sheets, MG3s , case summaries and  record of assets or cash seized by Police, HMRC or another law enforcement agency
  • Information or evidence held by HMRC or another regulatory or supervisory body that supports an assertion that the business has or will fail to meet its obligations under MLR 2017.
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MSBs, TCSPs and their BOOMs, must remain F&P throughout the duration of their appointment in their roles. If HMRC receives or establishes information requiring a review of whether a business or BOOM is F&P, consideration may be given to the suspension or cancellation of that business’s registration, depending on the nature of the information and circumstances of the case.

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Fit & Proper Test Failures

All BOOMs included in an MSB or TCSP application must pass the F&P test and must continually be able to pass the test throughout their appointment in these roles.

For new applications, a business must not act as a MSB or a TCSP  until it, and all BOOMs included in the application have passed the F&P test and its application has been approved.  If an individual or the business does not pass the F&P test at the point of application, HMRC must refuse to register the business.

If, after registration a BOOM is no longer F&P, the business must remove the BOOM from their role. If the BOOM continues to act in their role that requires F&P, HMRC may cancel or suspend the business’ registration.

When a new BOOM joins a business (or is appointed within the business to the role of a BOOM) after it has been registered, the business must amend its registration through their Government Gateway account, and the BOOM must apply and pay for a fit and proper test within 30 days of the BOOM taking up their role (or 14 days for a nominated officer). If the new BOOM fails the F&P test, they must be removed from their position within the business and must not continue to act as a BOOM in that business. If a BOOM continues act in their role having failed the F&P test HMRC may suspend or cancel the business’s registration and may also consult with the Insolvency Service to apply for director disqualification.

 

MSB Agents

A business operating as an agent for another MSB must be included in the registration information of that MSB (the principal). The agent may also operate as an independent MSB in its own right, and have control of its own business, and its Risk Assessment and Policies, controls and procedures, and, if so, should also register with HMRC for supervision.

MSB agents and their BOOMs are subject to the F&P test.  Principals are responsible for ensuring that their agents:

  • are included as agents under its own registration;
  • are F&P at the time of onboarding; and
  • remain F&P for the duration of the business relationship with the principal.

This will be monitored by HMRC.

It is possible for a business to operate as an MSB agent for multiple principals. Each principal must include the agent in its own registration information. Where an MSB agent has more than one principal, each principal must satisfy itself that the agent is F&P. An agent being included in one principal’s registration does not automatically mean they would be appropriate to act on behalf of another. This means agents must pass the F&P test with every principal they register with. Principals must apply the full F&P test, simply checking for criminal convictions is not robust enough of a test.

HMRC can contact MSB agents that are included in a principal’s registration to conduct compliance and registration checks as agents are relevant persons for the purposes of MLR 2017.  HMRC can also utilise regulation 66 MLR 2017 to require a MSB agent to provide any information that is reasonably required for assessing whether the agent or its BOOMs are F&P.

Any notice to provide information issued to an MSB agent under regulation 66 MLR 2017 must be as specific as possible and set out why the information or documents requested are considered relevant and necessary to conduct or apply the F&P test.

Professional Body Supervised TCSPs and F&P determinations

Where a TCSP is supervised by a professional body (PB) listed in Schedule 1 MLR 2017, this information is maintained by HMRC on a register (the ‘TCSP Register’) of all PB-supervised TCSPs. Regulation 58 MLR 2017 requires HMRC to consult the supervising PB and can (and does) rely on the PB’s determination as to whether or not that TCSP business and its BOOMs are F&P persons. Further information on the TCSP Register is available in ECSH52075 Professional Body Supervision of Trust or Company Service Providers (TCSP). 

External guidance

External guidance for the F&P test can be found here: The F&P test - GOV.UK (www.gov.uk)