Licensing Essentials: Fit and Proper Persons

When applying for an AFS or Australian credit licence, ASIC imposes a crucial criterion: before granting a licence, ASIC must be satisfied that certain people in the licence applicant’s business are fit and proper to engage in financial services (for AFS licensing) and credit activities (for credit licensing).

To meet this standard, licence applicants must undergo what is commonly referred to as the “fit and proper” person test, which evaluates their integrity, competence, and financial standing. This test ensures that those in positions of responsibility within the licensed entity are suitable and trustworthy.

1. Understanding the Fit and Proper Person Test Requirement:

When ASIC is deciding whether to grant a licence, they must consider whether certain people in the licence applicant’s business are fit and proper to engage in financial services (for AFS) or credit activities (for credit).

This test applies to:

  • Officers of the licence applicant, whether it’s a single natural person, a company, partnership or trustee of a trust; and
  • Any person who ‘controls’ the licence applicant, (referred to as a controller).

A ‘controller’ includes an individual or groups of individuals acting together who actually exercise control of the applicant. A controller typically has the capacity to determine the applicant’s financial and operating policy and any practice or behaviour of the applicant in delivering financial services or credit activities covered by the licence.

Persons that fit into this category are typically directors, the company secretary, C-Suite executives and Responsible Managers. If in doubt who these people are, seek advice.

2. Satisfying the Fit and Proper Person Test:

When applying for a licence, you will need to provide ASIC with additional prescribed information showing that there is no reason to believe that these persons are not fit and proper. Each person must provide ASIC with the following:

  • Full name, position description, residential address; and
  • Criminal history check that is less than 12 months old for each jurisdiction which the person has resided in for more than 12 months over the last 10 years; and
  • Statement of personal information (ASIC prescribed questionnaire).

ASIC has recently announced that applicants no longer need to provide bankruptcy checks for these persons as ASIC will check the bankruptcy register as part of their assessment.

ASIC must be satisfied that there is no reason to believe that certain people involved in the management or control of the financial services/credit business are not ‘fit and proper persons’ to undertake that role. ASIC will consider the information supplied when they are assessing a licence application. This assessment applies to new applications as well as licence variations.

The criteria for determining whether a person is fit and proper are:

  • The person is competent to undertake their role in relation to the financial services business (or in relation to an entity which controls the financial services business);
  • The person has the attributes of good character, diligence, honesty, integrity and judgement;
  • The person is not disqualified by law from performing their role; and
  • The person either has no conflict of interest in performing their role, or any conflict that exists will not create a material risk that the person will fail to properly perform their role.

This criterion is consistent with the approach APRA takes to determining whether responsible persons of authorised deposit taking institutions are fit and proper.

3. Practical Suggestions for Maintaining Ongoing Obligations:
A licensee has an ongoing obligation to ensure there is no reason to believe that these ‘fit and proper persons’ are not fit and proper. ASIC has the power to suspend or cancel a licence if one of these people is not fit and proper at any time during the term of the licence.

ASIC expects licensees to periodically carry out and document checks about whether responsible managers and other officers remain fit and proper.

To ensure a licensee can comply with this ongoing obligation, you should include a process to periodically (e.g. annually) undertake checks to ensure your officers remain fit and proper. These can include:

  • Criminal history checks;
  • Bankruptcy checks.

Other methods can also include having the person periodically sign a declaration that they remain fit and proper and declare any adverse changes to their circumstances which may affect whether they remain fit and proper. These should all be kept on file as a record that the licensee is complying with its obligation and made available to ASIC, if required.

Ongoing training of these persons is also useful to ensure they know what their fit and proper person obligations are and when they need to inform the licensee of any adverse changes to their circumstances. This should also be documented in a policy and supplied to new employees that will be classified as a fit and proper person.

4. What Happens When a Person is no Longer Fit and Proper:

ASIC must have regard to several factors when considering whether a person is no longer fit and proper to:

  • Provide the financial services or credit activities covered by the licence;
  • Perform the functions of an officer of a financial services or credit business; or
  • Control an entity that carries on a financial services or credit business.

The factors include:

  • Whether the person has had an AFS or Credit Licence suspended or cancelled;
  • Whether a banning or disqualification order has been made by a court against the person under Subdivision B of Div. 8 of the Corporations Act or Part 2-4 of the National Consumer Credit Protection Act 2009;
  • Whether the person has been disqualified from managing corporations under Pt 2D.6 of the Corporations Act;
  • Whether the person has been banned from engaging in any credit activity under a state or territory law;
  • Whether the person has ever been linked to a refusal or failure to give effect to a determination made by the Australian Financial Complaints Authority (AFCA);
  • Whether the person has been an insolvent under administration or been a Chapter 5 body corporate; and
  • Whether the person has been convicted of an offence in the last 10 years.

ASIC will also take into consideration any other matters that it considers relevant for the purposes of this assessment and will also consider relevant information given to ASIC by a State or Territory authority.

ASIC may only grant a licence if the fit and proper person test is satisfied in relation to the licence applicant.

It is critical when apply for, varying or maintaining an AFS or credit licence that you consider whether any of the officers of the licensee or officers of the controller are fit and proper persons. Failing this can result in ASIC refusing, suspending or cancelling a licence, and even banning the person.

You should consider early on who the officers and Responsible Managers will be and whether their past will trigger a negative outcome in relation to the fit and proper person test.

Meeting the fit and proper person requirement is an indispensable step towards obtaining and managing an AFS licence or credit licence in the financial services industry. Notably, the fit and proper person test is an ongoing obligation. Therefore, licence holders must ensure they have the appropriate internal measures in place to monitor and manage the fit and proper person test on an ongoing basis.

Reach out to us if you would like to discuss the fit and proper person requirements or licensing.


For more information, please contact Sónia Cruz or Jaime Lumsden.

KEY CONTACTS

Executive Director – Licensing