The Group takes the opportunity to stress that it sees the statement of "fit and proper" principles as being of universal application in the provision of financial services and does not see it as confined to those areas where there are formal responsibilities and powers. It follows that there is the entitlement, when acquiring such responsibilities and powers in new areas of provision of financial services and applying the criterion, to take into consideration any evidence of past performance.
The fit and proper principles run right through the work of the insurance supervisor in the exercise of his statutory and implied functions.
The principles, which date back in public administration over very many years, have undergone some evolution in recent years. In the United Kingdom, both the Bank of England and the SIB have published guidance on how those institutions apply the principles in the course of their work under the Banking Act 1987 and the Financial Services Act 1986 respectively. The Tribunal in the matter of Noble Warren Investments Limited also contributed to the understanding of the principles in its findings in that case, which was an unsuccessful appeal against refusal of authorisation under the Financial Services Act 1986. The Group has taken note of these precedents in formulating the following statement of how it applies the principles.
The Group's view of the principles goes well beyond the mere consideration of whether the person concerned has an acceptable record and it does so in at least two respects.
First, the insurance supervisor should not look for evidence that the person at least meets a minimum standard but rather it should look for evidence that the person meets a high standard. This is because, in the context of the provision of financial services, the person concerned will almost invariably occupy a position of trust for the money, other assets or financial interests of customers and this must imply higher standards of conduct than in many walks of life. With regard to institutions which become subject to regulation under new legislation and thereby applications for authorisation, the insurance supervisor should therefore look for much more positive evidence in favour of the applicant than the simple fact that it has operated in the particular field of financial services concerned for some years without giving cause for complaint.
Second, the Group believes that the concept embraces not only honesty but also solvency and competence. The Group believes that an objective standard exists which the insurance supervisor should be required by his statutory or implied functions to apply and that he should be competent to apply such a standard. It is irrelevant that an applicant or authorised institution may hold a subjective view of its own fitness and properness and, while the view of other parties may be relevant to the insurance supervisor's consideration of this criterion, these are not necessarily a substitute for the insurance supervisor's judgement. The Group also believes that the concept of "fit and proper" extends to conduct not only in dealings with the public but in the ordering of the institution's internal affairs.
In considering whether a person satisfies the "fit and proper" principles the insurance supervisor should have regard to a number of general considerations, whilst always taking account of the particular circumstances of the individual or institution concerned. With regard to an institution, the insurance supervisor is entitled to take account, inter alia of its business records, other business interests, financial soundness and strength, the nature and scope of its business and the institution's record keeping and other internal systems. With regard to an individual who is an executive director or manager of an institution, the insurance supervisor should include amongst the relevant considerations whether he has sufficient skills, knowledge, experience and application properly to undertake and fulfil his particular duties and responsibilities. In addition, the insurance supervisor shall take into account a person's reputation and character, including such matters as whether he has a criminal record. Convictions for dishonesty are especially relevant but the insurance supervisor should also have regard to other types of offence since it is vital that a person responsible for managing an institution authorised by the insurance supervisor in discharging his statutory and implied functions is of the highest integrity.
The insurance supervisor should have regard to the performance of that person in the exercise of his duties. Thus incompetence or imprudence in the conduct of an institution's business or anything which has threatened (without necessarily having damaged) the interests of existing or future customers will reflect adversely on those responsible, whether the matters of concern have arisen through the way they have acted or their failure to act in an appropriate manner. The insurance supervisor should take a cumulative approach, so as to determine whether a person fails to satisfy the principles on the basis of several instances of such conduct which, taken individually, might not lead to that conclusion.
The standards demanded are more onerous for those persons with prime responsibility for an institution's affairs, though they may vary according to the nature of the business concerned. In all cases, the insurance supervisor should look for a firmly-based understanding of the institution's business and a clear conception of its future development and also for evidence of sound judgement regarding both commercial and administrative matters relevant to the business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information contact Peter Crook on Tel: +44 (0) 1481 712706
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