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The fit and proper test and HMRC approval technical guidance

Contents

  1. Introduction
  2. The fit and proper test
  3. Approval by HMRC
  4. How the new rules affect you and your business
  5. Examples of the tests
  6. Transparency
  7. Appendix 1

Introduction

Most businesses supervised by HMRC for anti-money laundering purposes are subject to either the fit and proper test or approval requirements under the regulations.

These are to make sure that businesses beneficial owners, officers and senior management are suitable people to undertake those roles. Responsible persons must pass the relevant test before the business can register, and remain registered, with HMRC.

HMRC stress that neither of these requirements test whether the business is professionally run or operated.

Registration is a legal requirement to trade, it’s not a recommendation or endorsement of the business.

HMRC advises registered businesses to carefully avoid using language in this context that might give the impression that registration was a form of endorsement or recommendation.

The fit and proper test

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

  • money service businesses
  • trust or company service providers

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

HMRC cannot register your business if any applicants fail to pass the test.

You do not have to apply every year but if a new person joins your business they’ll have to take a test if it applies to them.

It’s your responsibility as a money service business principal to make sure your agent and your agent’s responsible persons are fit and proper.

Who must apply

When you register as a principal under the regulations, the responsible persons must apply for a fit and proper test as part of the process.

Responsible persons are:

  • running the business either on their own or in partnership
  • officers of the business including director and company secretary
  • senior managers who are engaged directly in the provision of regulated activity
  • the nominated officer
  • a ‘beneficial owner’ of the business
  • a person who is effectively directing the business

Agents do not apply to HMRC for the fit and proper test. It’s your responsibility as a money service business principal to make sure your agents and their beneficial owners, officers and managers are fit and proper.

More information about beneficial owners of money service business, trust or company service providers can be found in Your responsibilities under money laundering supervision.

The meaning of ‘effectively direct’ a business

This term applies to money service businesses or trust and company service providers but not money service business agents, 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 and:
    • 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

Contact HMRC for advice if you do any of these activities but are still not sure if you direct the business.

 

Senior managers

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

  • managers who make decisions affecting compliance and are responsible for regulated activities
  • individuals employed by the principal to oversee or manage the screening and propriety of their money service business agents

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

HMRC reserves the right to insist on individuals being tested where in its judgment it is necessary to safeguard a business from money laundering or terrorist finance risks.

Money service business principal with agents

You must:

  • make sure your agents understand the new requirements of the regulations
  • have a policy and procedures in place so you can screen your agents before your application for a fit and proper test is submitted to HMRC
  • carry out and keep a record of appropriate enquiries to satisfy yourself that responsible persons of your agents will pass the fit and proper test
  • keep an up to date list of agents with their details, to allow HMRC to carry out its own checks

If you have agents you need to make sure that the beneficial owners, officers and senior managers are fit and proper.

An agent or agents are appointed to act on behalf of a money service business (the principal) to, for example:

  • accept money transmission instructions from customers
  • accept cheques for encashment
  • undertake currency exchange

You can undertake a range of enquiries to be reasonably satisfied on that point. It’s important that money service business principals take effective steps to prevent individuals with schedule 3 convictions from becoming or remaining relevant persons at their agents.

HMRC suggests that principals should have the individuals concerned get a certificate following a basic Disclosure and Barring Service check.

HMRC is happy to consider accepting other methods as long as the results achieved can be shown to be equally robust.

HMRC cannot register a principal unless it’s satisfied that responsible persons in the business and its agents are fit and proper.

Right to work status

A money service business principal must check the right to work status of an agent before appointment. It’s also good practice for a principal to make sure his agents meet their obligations to check their own employees.

An employer’s duty in relation to right to work applies to agents and employees.

Principals and agents who carry out this check must:

  • see original documents that prove the agent’s right to work in the UK, such as a valid passport or visa
  • check the documents are valid in the presence of agent
  • take and keep copies of the documents with a note of the date when they were seen

A principal that does not screen their agent with due care is unlikely to be seen as fit and proper themselves. A principal can face a civil penalty if an agent is appointed without being screened on their skills, knowledge and expertise to carry out a regulated activity.

Example

You own a money service business and employ a director to manage it. You also employ a senior 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. The fit and proper test applies to the following responsible persons:

  • to you as a beneficial owner
  • the director

As the principle you must make sure the 10 agents of your money service business, as well as their beneficial owners and senior managers are fit and proper.

The fit and proper test does not apply to the senior manager responsible for recruitment, because he does not make decisions affecting compliance and is not directly responsible for the provision of regulated activity.

How to apply

Apply online when you register for anti-money laundering supervision.

There is a fee for the fit and proper test.

Once HMRC has received your application we will carry out various checks to make sure the information you’ve provided is correct.

HMRC will check your information against its own records and records kept by:

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

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

Part 1

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

Part 2

HMRC looks at history of failure to comply with the money laundering regulations (2017, 2007, 2003 or 2001) which is a judgment issue.

Part 3

This is discretionary. HMRC will look more widely at a person’s:

  • honesty and integrity
  • competence and capability
  • financial soundness including tax affairs

Appendix 1 explains the full width of the discretionary test.

If HMRC has questions about your application, we might ask you to visit one of our offices. If this happens, we will write to you with the office address, date and time of the visit.

We will tell you within 45 days of receiving your application if we will register or refuse to register your business. If you need to send extra information, the deadline for giving you the decision will be extended.

If you pass the test, HMRC will continue to monitor your fit and proper status. You need to contact HMRC if, after passing the fit and proper test, you’re convicted of a relevant offence or anything else happens that may impact your fit and proper status.

If you fail the fit and proper test

You’ll fail the test if you cannot satisfy HMRC that you’re a fit and proper person with regard to the checks above. For example, you will fail if you’ve been convicted of a relevant offence.

If the person who fails the test is the nominated officer, you can:

  • appoint someone else who already has fit and proper status as the nominated officer
  • choose someone else to apply for the fit and proper test

HMRC will not process your application for registration if one or more of the applicants from your business fail the fit and proper test.

If you’re a sole practitioner and you fail the test HMRC will not register your business.

You have the right to ask for a reconsideration of a decision or to appeal the decision to refuse registration.

You cannot trade in a regulated sector if HMRC refuses to register your business, until the decision is reviewed.

Non-payment of registration fees will also result in refusal of your application.

If, after registration any person holding the fit and proper status no longer meets the requirements, HMRC may cancel or suspend your registration.

You must tell HMRC if you find out that any responsible persons in your business no longer meets 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.

Personnel changes and fit and proper status

If a new person joins your business after you’ve registered under the regulations they’ll have to apply for a fit and proper test if they’re a key person.

If the new individual already has fit and proper status from working for another money service business, trust or company service provider ask HMRC to confirm this.

You should write to the Registration Team giving the person’s:

  • name
  • address
  • Money Laundering Regulations registration number of the business where they were given fit and proper status

The Registration Team will confirm whether the individual is on the list of fit and proper people.

If the individual is already on the list they do not need to reapply for fit and proper status unless their circumstances have changed in a way that may affect the test result.

If the new person does not have fit and proper status you’ll need to apply for the test in the normal way.

UK resident

If HMRC receives an application from a UK resident but cannot confirm their identity we will contact the applicant to send a government issued document with their:

  • full name
  • photo ID to confirm their identity
  • date of birth
  • home address

Non-UK resident

Non-UK residents also need to send documents to confirm their:

  • identity
  • date of birth
  • home address

HMRC accepts documents issued by a government to confirm identity, for example a valid passport or valid full or provisional driving license which may also confirm the address.

If the address is not shown on the identity documents other documentation is needed to confirm the home address. Documents HMRC will accept are:

  • current council tax demand letters or statements, or their overseas equivalent
  • current bank or credit card statements
  • utility bills

HMRC accepts original documents or ‘certified’ copies.

An independent professional person who is competent at document inspection and imposter detection, for example a person from a regulated industry or in a position of trust, can certify a copy but they must not be a friend or relative.

An independent professional person can be a:

  • family doctor
  • chartered accountant
  • civil servant
  • solicitor or notary
  • minister of religion

The independent person who certifies it should include on the document:

  • a statement that the document is ‘Certified to be a true copy of the original seen by me’ , and where appropriate, ‘This is a true likeness of the person’
  • an official stamp of the person certifying
  • signature, printed name and date
  • occupation, address and telephone number

Documents should be sent to:

HMRC Anti Money Laundering Supervision
Peter Bennet House
Redvers Close
Lawnswood Park
Leeds
LS16 6RQ

Approval by HMRC

Approval is a separate process to the fit and proper test.

HMRC must approve certain individuals before they can own or hold positions of authority within the following business sectors:

  • accountancy service provider
  • estate agency business
  • high value dealer

This is to prevent anyone with an unspent conviction for a relevant offence being involved in the running of the business or benefiting from it.

If your business also carries out the activities of a money service business or trust and company service provider you’ll also need to apply for the fit and proper test.

Who needs to be approved

The approval process applies to:

  • senior managers
  • beneficial owners
  • sole practitioners
  • officers

Officers include:

  • nominated officers and directors
  • secretaries
  • chief executives
  • person(s) controlling the company
  • member(s) of the management committee of a corporate body
  • an officer or governing body member of an unincorporated association and any partner
  • manager, secretary or similar officer of a partnership
  • any person claiming to act in any of the above roles

The business must take care to make sure no one acts as a manager, officer, beneficial owner or sole practitioner who has not been approved by HMRC.

If you or a key person in your business, have been, or are later convicted, of a relevant offence:

  • you must tell HMRC within 30 days of the date the business became aware of the conviction
  • the individual must also tell HMRC within 30 days of the date of conviction

The approval becomes invalid from the date of conviction.

An approval is invalid if it’s obtained by error or dishonesty, for example if a relevant unspent conviction is not disclosed.

Personal liability

It’s a criminal offence to act in a role knowing you have not been approved by HMRC or your approval is no longer valid.

You may be liable to imprisonment for a term not exceeding 2 years or a fine.

How to apply

Apply online when you register for anti-money laundering supervision.

There is a fee for approval.

The approval is part of the registration process. HMRC will notify you of the outcome of your application within 45 days of receipt. We may also ask for additional information.

HMRC will check your information against its own records and against police records.

We may check managers, officers, beneficial owners and sole practitioners at any time after registration to make sure they should continue to be approved.

If you’re not approved by HMRC

If you’re not approved you must not act as a:

  • manager
  • officer
  • beneficial owner
  • sole practitioner

HMRC will not register your business while you continue to occupy a position of authority.

Whether you’ve been convicted of an offence in schedule 3 of the regulations is a matter of fact.

There is no right of appeal as HMRC have not made a decision. If the person not approved is the nominated officer, you can appoint someone else to the position. They must still meet the criteria for approval by HMRC.

How the new rules affect you and your business

This depends on:

  • the activities you’re involved in
  • whether you’re an existing business or a new registration
  • whether you’re a money service business and if you have agents

The fit and proper test

Responsible persons subject to the fit and proper test (a money service business, agent or trust and company service provider) can for convenience apply the fit and proper test in 2 phases:

Phase 1

If the individual has an unspent schedule 3 conviction they cannot pass the fit and proper test.

Phase 2

If the individual does not have an unspent schedule 3 conviction but may have other reasons why they may not be fit and proper.

This is a broad test, and the issues that need to be considered are whether they:

  • have consistently failed to comply with the current or previous Money Laundering Regulation
  • are not fit and proper for a reason, set out in Appendix 1

Where an individual may not be fit and proper because of any issue covered in
Appendix 1, including any unspent convictions for offences not listed in schedule 3, they must be declared to HMRC.

For example any matters that cast doubt on the:

  • honesty and integrity of the individual, such as any disciplinary proceedings or dismissal (see Appendix 1 Part A),
  • competence or capability of the individual (see Appendix 1 Part B)
  • financial soundness of the individual (see Appendix 1 Part C)

When disclosing any matters under this requirement you may also, if appropriate, make representations explaining why the individual should now be treated as fit and proper.

HMRC carries out checks on applications for fit and proper status. Dishonest applications will be treated seriously and may render those concerned liable to prosecution. Any dishonesty in an application will also be taken into account in deciding whether those concerned are fit and proper.

The approval regime

Responsible persons are subject to the approval regime and will be asked if they’ve an unspent schedule 3 conviction. If they have they cannot be approved.

Description of an agent

An agent provides a particular service on behalf of another business. In a true agency relationship, the agent is authorised by the principal to perform certain acts, for and on behalf of the principal. The principal is bound by the acts of the agent, performed in carrying out entrusted duties and within the scope of the agent’s authority.

Description of a spent conviction

A spent conviction is a conviction which, under the terms of Rehabilitation of Offenders Act 1974, can be effectively ignored after a specified amount of time.

The amount of time for rehabilitation depends on the sentence imposed, not on the offence. The more serious the conviction, the longer the period of rehabilitation. For example, if you’ve received a prison sentence of more than 4 years, the conviction will never become spent, but cautions become spent immediately (apart from conditional cautions which will become spent after 3 months).

Examples of the tests

Example 1

If you’re a new money service business principal or trust and company service provider, but not an agent the responsible persons at your business must take the fit and proper test as part of your business registration process.

Example 2

If you’re a new money service business principal and have one or more agents:

  • you must tell HMRC who your money service business agents are
  • you can only appoint, nominate or list a money service business agent if you’ve satisfied yourself that all the responsible persons at the agent are fit and proper

You should not appoint an agent unless you’re satisfied that all the responsible persons are fit and proper.

Example 3

If you’re an existing money service business, trust or company service provider, already on the HMRC anti-money laundering register.

Your beneficial owner(s) and directors will already have taken the fit and proper test, and do not need to retake it.

When your registration is renewed during the normal annual registration renewal process you’ll be asked to identify any senior managers who must now take the fit and proper test.

Example 4

If you’re an existing money service business principal and have one or more agents.

You can only continue to use a money service business agent if you’ve satisfied yourself that all the responsible persons at the agent are fit and proper.

You need to do this for each agent you use.

You should not continue to use a money service business agent unless you’re satisfied that all the responsible persons are fit and proper.

Example 5

If you’re an existing money service business principal and propose to appoint a new agent.

It’s your responsibility to make sure your agent(s) and the agent’s beneficial owners, officers and senior managers are fit and proper. You must also tell HMRC who your proposed new money service business agent is.

Example 6

If you’re a new accountancy service provider, estate agency business or high value dealer.

Responsible persons at your business must be approved as part of your business registration process.

You will have to provide the full name, residential address, and date of birth for each individual concerned.

Example 7

If you’re an existing accountancy service provider, estate agency business or high value dealer already on the HMRC anti-money laundering register.

When your registration is renewed during the normal annual registration renewal process you will be asked to identify the responsible persons who must now be approved.

If you provide a mix of services such as money service business and as an estate agent, responsible persons in your business only need to take the fit and proper test.

Transparency

Individuals subject to the fit and proper test and HMRC approval are expected to be fully transparent in their dealings with HMRC.

They must make full and frank disclosures of any material that may be relevant and declare any convictions of a relevant offence. 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.

You may make representations at the same time as the disclosure, to explain why you consider the individual concerned should still be treated as fit and proper.

Individuals should continue to be transparent after they have passed the fit and proper test or the approval process. They must disclose any change or development to HMRC that affects their fit and proper or approval status.

Any lack of transparency or dishonesty might impact your fit and proper and approval status.

Appendix 1

A person must be found to be fit and proper for each of the following tests in parts A, B and C.

Part A: honesty and integrity

(1) whether the person has any unspent conviction for an offence listed in schedule 3. In addition you should declare any other unspent 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 or not in the UK.

(2) whether the person 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.

(3) whether the person 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.

(4) whether the person 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.

(5) whether the person 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.

(6) whether the person 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.

(7) whether, as a result of the removal of the relevant licence, registration or other authority, the person has been refused the right to carry on a trade, business or profession requiring a licence, registration or other authority.

(8) whether the person 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.

(9) whether the person, 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.

(10) whether the person has been dismissed, or asked to resign and resigned, from employment or from a position of trust, fiduciary appointment or similar.

(11) whether the person has ever been disqualified from acting as a director or disqualified from acting in any managerial capacity.

(12) whether, in the past, the person has been candid and truthful in all his dealings with any regulatory body and whether the person 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.

Part B: competence and capability

To determine a person’s competence and capability, HMRC will have regard to all relevant matters including but not limited to:

(1) whether the person satisfies the relevant training and competence requirements in relation to the role the person performs or is intended to perform.

(2) whether the person has demonstrated by experience and training that the person is suitable, or will be suitable if approved, to perform the role.

(3) whether the person has 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 person may have been convicted of, or dismissed or suspended from employment for drug or alcohol abuse or other abusive acts. This will be considered only in relation to a person’s continuing ability to perform the particular role for which the person is or is to be employed.

The relevant training requirements are that the person ensures that they are:

a) made and remains aware of the law and relevant guidance relating to money laundering; and

b) that he regularly receives training in how to recognise and deal with transactions and other activities which may be related to money laundering.

Part C: financial soundness

To determine a person’s financial soundness, HMRC will have regard to any factors including, but not limited to:

(1) whether the person 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.

(2) whether, in the UK or elsewhere, the person has made any arrangements with his creditors, filed for bankruptcy, had a bankruptcy petition served on him, 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.

(3) whether the tax affairs of the person 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 preclude the person being involved in requests for reconsiderations of rulings or decisions, appeals or similar proceedings in respect to matters of liability to taxes etc).

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

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By HMRC