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Few financial workers fail "fit and proper" test
April 12, 2013 / 6:05 AM / 5 years ago

Few financial workers fail "fit and proper" test

LONDON (Reuters) - British financial regulators have blocked just 30 out of a possible 227,000 applications to the sector’s most risk-sensitive jobs since the banking crisis erupted, figures seen by Reuters show.

The logo of the new Financial Conduct Authority (FCA) is seen at the agency's headquarters in the Canary Wharf business district of London April 1, 2013. REUTERS/Chris Helgren

The Financial Services Authority (FSA), which was abolished at the start of this month in a regulatory shakeup, rejected one appointment for every 7,566 proposed by banking, insurance and other finance firms under the terms of its ‘approved persons’ regime between April 2007 and the end of 2012.

The FSA took the blame for failing to head off the financial meltdown, which began in Britain with the near collapse of Northern Rock bank in 2007, or to prevent the misselling of products to customers leading to billions of pounds in compensation claims, and has been replaced by two organisations.

A spokeswoman for one of the new bodies, the Financial Conduct Authority (FCA), said 7,000 of the applicants were never fully assessed and withdrew their applications. This means that 97 percent of those who sought regulatory approval succeeded.

Ex-officials of lenders which needed taxpayer-funded bailouts have drawn heavy fire, and a parliamentary commission said last week that the regulator should consider banning the former bosses of HBOS bank from the industry.

Regulators overseeing London’s financial industry have been at the forefront of a Europe-wide drive to increase professional standards by scrutinising candidates slated for sensitive roles, aiming to ensure they have the right skills to do their jobs.

But critics say the FCA figures show little has changed and a cosy relationship still exists between banks and regulators.

“We have a cultural problem that has brought banking to its knees and cost the taxpayers a fortune and these people continue as if it’s business as usual,” said John Mann, a member of parliament for the opposition Labour party and a Treasury Committee member.

“It’s about time that regulators got real about the problems in banking and I see no signs of that happening,” he added.

When contacted by Reuters, the UK Treasury, British Bankers’ Association and the Association for Financial Markets in Europe had no immediate comment.

A spokesman for the parliamentary Treasury Committee declined comment because it is due to publish its own recommendations on improving culture and standards in banking next month.


In determining approved persons, the regulator - now the FCA - examines a candidate’s “honesty, integrity and reputation”, their “competence and capability” and their “financial soundness”.

The FCA does not have a set list of things that would disqualify a person but regulators would “be concerned by any facts and matters that suggest that a person does not meet” the key tests, the spokeswoman said.

Documentation on the FCA’s website shows that criminal convictions involving dishonesty are “of particular concern” but do not necessarily result in applications being rejected.

Members of the financial community said the rules, tightened in late 2008, would impede company hiring plans and 1,850 of the 40,997 candidates put forward in the year to April 2009 voluntarily withdrew applications for approved status.

But the new figures show the numbers of people withdrawing from assessment have fallen sharply, while rejections from the FCA have remained negligible.

Will Pomroy, corporate governance policy adviser at the National Association of Pension Funds, said he hoped the small number of failed applications reflected more robust assessments of staff competence, capability, honesty and integrity at company level.

“Investors expect the board to take responsibility - and be accountable - for setting the culture from the top and ensuring it filters down throughout the workforce,” Pomroy said.

“They would not want to be relying solely on the assessments of the regulator for each individual employed in a controlled function - of which there a large number.”


But others said they drew less comfort from the figures, suggesting that rejections might have fallen because staff were being coached to pass the tests, or giving up promotion prospects because they did not want to risk humiliation, or other consequences, if they failed.

“Think of it in terms of Heisenberg’s Uncertainty Principle or The Observer Effect: ‘Directors are like sub-atomic particles, they behave differently under observation’,” one industry sceptic said, on condition of anonymity.

The FCA does not break out rejections by year, but annual figures do show the number of applications and withdrawals.

The latest full-year figures show withdrawals came in at just 597 in the year to April 2012, against a peak of 1,850 in the year to April 2009.

The UK’s ‘fitness and probity’ process is one of the broadest in Europe, encompassing senior management and directors, and staff working in compliance, risk and internal audit across all firms authorised by the regulator.

Most assessments are done in writing but the regulator routinely interviews candidates for the most senior roles in “high impact firms”, and carries out other interviews on a “risk-based approach if there are concerns about a candidate or firm”, the FCA spokeswoman added.

Britain’s regulators have the power to ban individuals from working in financial services ever again.

Johnny Cameron, former investment banking chief at bailed out bank Royal Bank of Scotland, was banned in May 2010 by the regulator from taking a significant job in the City of London, but later that year he was allowed to take on a part-time advisory role at corporate finance boutique Gleacher.

Additional reporting by Clare Hutchison; Editing by Helen Massy-Beresford and David Stamp

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