Guidance: The fit and proper test

Under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) regulations 2017 (the regulations), money service businesses (MSBs) and Trust or Company Service Providers (TCSPs) are subject to the fit and proper test.

The test is to make sure that the applicant, and its beneficial owners, officers and managers (BOOMs) are suitable people to undertake those roles. BOOMs must pass the test before HMRC will register the business.

Whilst a person’s skills and experience to act in a given role is considered as part of the test, the fit and proper test does not test whether your business is professionally run or operated.

The fit and proper test

HMRC carries out the fit and proper test as part of the anti-money laundering supervision registration process for:

• money service businesses
• trust or company service providers

HMRC also carries out fit and proper checks after you have registered as part of its supervisory function.

We use information already held and information from other sources to carry out the checks. You will also be asked a series of questions at registration.

We will not register your business if any applicants or BOOMs fail to pass the test or, in the case of MSBs, where it cannot be satisfied that the agents or its BOOMs are fit and proper.

We will regularly review our fit and proper decisions, but you only pay for the test once per person.

When a new BOOM joins your business, you must:

• amend your registration through your Government Gateway account
• apply and pay for the new BOOM to take the test

The fit and proper test considers a person’s suitability in a given role and therefore that of the business.

An individual may need to undergo the fit and proper test if they move to a new role.

If you are a MSB that uses agents to provide your services, it’s your responsibility to make sure any agents used and their BOOMs would satisfy the fit and proper test. We may request to see evidence of these checks.

An agent is an individual or business appointed to act on behalf of another person or business in the provision of their services.

How HMRC carries out the test

The fit and proper test is made up of 3 parts.

Part 1

HMRC will test if an applicant or a BOOM has an unspent conviction for a relevant offence. An applicant or a BOOM that has an unspent conviction that is listed in Schedule 3 of the regulations will automatically fail the fit and proper test.

Part 2

We will consider whether there has been a consistent failure to comply with the regulations by the business or the relevant BOOM 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 the regulations. If you have failed to comply with a range of requirements under the regulations, this might also mean you fail the test.

Part 3

We will look more widely at:

• honesty and integrity
• skills and experience
• financial soundness, including tax affairs

Who must apply

When you apply for registration or add new BOOMs after you have registered, you must also apply and pay for a fit and proper test for all the BOOMs as part of the process.

BOOMs are:

• individuals who are running the business either on their own or in partnership
• officers of the business including director and company secretary
• managers who are engaged in the provision of regulated activity (see ‘Managers’ section)
• managers who are involved in the development, or monitoring of policies and procedures related to regulated activity (see ‘Managers’ section)
• the nominated officer
• a beneficial owner of the business
• a person who is effectively directing the business

Personnel changes

If a new BOOM joins your business after you’ve registered, under the regulations they’ll have to apply and pay for a fit and proper test within 30 days of the change.

If an individual who has passed the test moves from one MSB or TCSP to another, they’ll need to apply and pay for a new test.

The meaning of ‘effectively direct’ a business

This term applies to money service businesses or trust and company service providers and means:

• a person who is appointed as director
• a person who is not appointed as a director but still acts as if they were a director, such as a person who:
  • makes decisions about the policies and direction of the business
  • is part of a board, or group that makes decisions about the business direction
  • makes financial decisions on behalf of the business
  • is a signatory to the bank account for the business
  • decides how much credit can be given to customers
  • has significant staff management ― for example you may have overall management of the business or you may direct staff on how they do their job
  • appoints and dismisses employees on behalf of the business

Managers

The fit and proper test applies to those persons who manage the anti-money laundering and counter terrorist financing regime of a business and includes 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.

HMRC reserves the right to insist on additional individuals being tested where necessary to safeguard a business from money laundering or terrorist financing risks.

How to apply

You should apply online for the fit and proper test when you register for anti-money laundering supervision.

You do not have to apply for the fit and proper test every year, but you must apply for any new BOOMs that join your business after your registration. You can do this through your Government Gateway account.

There is a fee for the fit and proper test.

Once we have received your application and you have paid the fee, we will carry out various checks to make sure the information you’ve provided is correct.

HMRC will carry out the fit and proper test on new applicants and the BOOMs within its business. This includes any new BOOMs joining a business already on the register and as a review of existing fit and proper decisions.

We may also:

• carry out fit and proper tests on your agents and their BOOMs
• request additional information from the business, individuals or both

We will accept:

• original documents or ‘certified’ copies (you can read more about certifying a document)
• translated and certified versions of an overseas equivalent for a non-UK resident

We will check this information against your records, and records kept by:

• other regulatory authorities
• commercial organisations
• government and law enforcement agencies

After you apply

If we have any questions about your application, we will write to you via secure communications on your Government Gateway account to agree a date and time for a telephone call or visit to one of our offices. We will use the email address provided on your application to notify you of this.

We will tell you within 45 days of receiving your application if your business and the BOOMs included in the application in it are fit and proper. If we ask you to send extra information to assist in determining your application, the deadline for giving you the decision will be extended. If we do not receive a response within 21 days, your application will be refused.

HMRC will continue to monitor whether your business, and the BOOMs in your business are fit and proper. We may also check whether your agents and the BOOMs of your agents are fit and proper. You should contact HMRC if, after passing the fit and proper test, any of the BOOMs in your business or your agents or your agents themselves are convicted of a relevant offence or anything else happens that may mean we are no longer satisfied they are fit and proper.

You can check if you need to tell someone about your criminal record.

If you fail the fit and proper test

You will fail the test if HMRC is not satisfied that the applicant or BOOMs are fit and proper, with regard to the checks above. For example, you’ll fail if you have an unspent conviction for a relevant offence.

HMRC must refuse your application for registration if one or more of the BOOMs from your business fail the fit and proper test.

If they fail the test, they must not continue in their duties. HMRC may take civil or criminal action against your business if they do.

You have the right to ask for a review of a decision or to appeal the decision to refuse registration. You cannot appeal the decision that you are not a fit and proper person if the only reason for that decision was that you have an unspent conviction for a relevant offence.

You cannot trade in a regulated sector if HMRC refuses to register your business.

If you do not pay your registration fee, or your fit and proper fee, we will not register your business.

You should tell us if you find out that any BOOMs, agents, or BOOMs of agents in your business no longer meet the requirements of the fit and proper test and confirm you have removed them from working in a position that requires them to be fit and proper.

After registration, if any BOOM is no longer fit and proper and continues in their role, we may cancel or suspend your registration.

Money service businesses with agents

If you are a MSB with agents, you must be satisfied that any agents and its BOOMs used to provide your MSB services would satisfy the fit and proper test. HMRC does not normally conduct fit and proper test on the agents of MSBs as part of the application process.

Agents do not apply to HMRC for the fit and proper test.

You should carry out a range of enquiries to be sure that your agents and their BOOMs would satisfy the fit and proper test. It’s important that MSB principals take effective steps to prevent individuals who are not fit and proper from becoming or remaining agents or BOOMs.

When HMRC visits or contacts your business, the officer may ask questions about how you check that your agents are fit and proper. You must have policies, controls and procedures in place that include appropriate measures to assess:

• whether your agents are fit and proper
• the risk your agent may be used for money laundering or terrorist financing

You must:

• make sure your agents are aware of any new requirements of the regulations and regularly given training to recognise and deal with transactions related to money laundering or terrorist financing
• keep a record of the training provided
• make sure your policies, controls and procedures contain appropriate measures so you can assess whether your agents and their BOOMs would satisfy the fit and proper test before your application for a fit and proper test is submitted to HMRC
• carry out appropriate enquiries to satisfy yourself that your agents BOOMs are fit and proper and keep a record of these assessments to allow us to carry out our own checks

You should also be able to show evidence of:

• checks you have done and when they were done
• any checks you’ve made because of your risk assessment or another reason after you’ve carried out the initial check

Assessing whether agents are fit and proper should include measures setting out:

• when or how often the checks should be carried out
• procedures for checking whether the agent or the beneficial owner, officer or senior manager of the agent has a relevant criminal conviction (these can be found in Schedule 3 of the regulations)
• when you will re-check for any relevant criminal convictions
• how you check whether the agent’s business is susceptible to money laundering or terrorist financing ― this may include checks into whether the business is viable
• checking whether the agent has had action taken against them by HMRC previously and how often this is to occur ― you can check whether we’ve published details of any breaches

HMRC suggests that when checking for unspent convictions listed in Schedule 3 of the regulations, MSB principals should request to see certificates following a basic Disclosure and Barring Service check (DBS).

We will consider accepting other methods of checking a person has no unspent convictions listed in Schedule 3 of the regulations, as long as the results achieved can be shown to be equally robust.

If we find that you or your BOOMs are not fit and proper, or the measures in place to assess whether your agents would satisfy the fit and proper test are not appropriate, we may cancel or suspend your registration.

The above list is not exhaustive, and you should consider how to minimise the risks of persons who are not fit and proper entering your business.

Example

You own a money service business and employ a director to manage it. You also employ a manager responsible for the recruitment in your company. You also have a network of 10 agents.

You apply to register the company under the regulations. BOOMS who must also apply for a fit and proper test include:

• you as a beneficial owner
• the director

You must make sure the 10 agents of your money service business, as well as their BOOMs would satisfy the fit and proper test.

The fit and proper test may not apply to the manager responsible for recruitment if they do not monitor delivery of the policies including staff’s internal compliance and delivery or carry out:

• any supervisory activity that touches on policies
• controls and procedures that relate to anti-money laundering or counter terrorist financing

If the manager responsible for recruitment also carried out the fit and proper checks on your agents, the test would apply, because their role relates to your anti-money laundering policies, controls and procedures.

Providing false information

Individuals subject to the fit and proper test are expected to be fully transparent in their dealings with HMRC. If they’re in any doubt about whether something is relevant or needs to be declared they should contact HMRC. You could be liable to prosecution if you provide false or misleading information.