Anti-money laundering guidance for supervised businesses

AMLG1600 - Guidance for all sectors: Fit and Proper Test and Approval Checks

6. Fit and Proper Test and Approval Checks

When a business applies to register with HMRC, the business’s BOOMs (and the business itself in the case of an MSB or TCSP) are usually required to undergo either a fit and proper test or an approval check as part of the registration process. If a new BOOM takes up their position in your business after it has been registered, that BOOM is also subject to either a fit and proper test or approval check.The applicable test is determined by the activity carried out by the business. The only exception applies to BPSPs and TDITPSPs, who are not required to take either test as part of their application for registration.

6.1 Fit and Proper Test

Who must undergo Fit and Proper Testing?

The fit and proper test applies to MSBs and TCSPs. Both the business and its BOOMs are required to undergo fit and proper testing. This includes sole practitioners.

Can your business trade whilst HMRC is carrying out Fit and Proper testing as part of the Registration process?

An MSB or TCSP must not carry on business until HMRC determines that the business and its BOOMs are fit and proper, and you are accepted onto the register. If your business does carry on MSB or TCSP activity before it is accepted onto the register, it will be trading whilst unregistered in breach of the Regulations and liable to a civil penalty or criminal prosecution.

If you are a principal MSB that uses agents who are included on your registration, it is your responsibility to assess whether any such agents would satisfy the fit and proper test.

You must not allow an agent to carry on business on your behalf unless you have assessed that they would satisfy the fit and proper test. If you do so, HMRC may suspend or cancel your registration.

For more information on penalties and sanctions, see AMLG1300.

What is the impact of failing the Fit and Proper Test?

If you make an application for registration and your business or any of its BOOMs fail the fit and proper test, HMRC must refuse your application for registration, and you cannot carry on business.

Where a business has only one BOOM and that individual is found not to be fit and proper after registration, that individual cannot continue to act in that role. As the business no longer has a fit and proper individual in place, it cannot carry on any relevant activity.

Where a business has more than one BOOM and all of them are found not to be fit and proper after registration, none of those individuals can continue to act in their roles. In those circumstances, the business does not have any BOOM who is fit and proper and therefore it cannot carry on any relevant activity.

If your business or any of its BOOMs fail the fit and proper test after registration, HMRC may suspend or cancel the business’s registration notwithstanding that the business may have one or more BOOMs that are still considered fit and proper.

When is the Fit and Proper Test carried out?

The fit and proper test is carried out:

• As part of the initial registration process; and
• When a new BOOM takes up their position in your business after it has been registered. Any new BOOM must pass the fit and proper test before they can take up their position in the business.

 HMRC can also review whether the business and/or its BOOMs remain fit and proper at any time after you are accepted onto the register, as being fit and proper is an ongoing requirement.

Important note: When an MSB or TCSP business applies for registration, or a new BOOM is added to the business after registration, the business must apply to HMRC online for the fit and proper test for the BOOMs, and pay a fee. For more information about how to apply, see The fit and proper test - GOV.UK (www.gov.uk). The business and its BOOMs cannot undertake any activity in a fit and proper sector, until they have applied and been found to be fit and proper. This includes if the business is already trading in an approvals sector, and decides to offer MSB and TCSP activity. Additional business activity If your business and its BOOMs have passed the fit and proper test and are registered to carry out activity in one fit and proper sector, you must not carry out activity in another fit and proper sector until the business and its BOOMs have registered and passed the fit and proper test applicable to that new sector. This is because the factors considered as part of that test may vary for different sectors, including the skills and experience required for each sector. BOOMS moving to a different business within the same sector The fit and proper test is not transferable and only allows the BOOM to act in their position in the particular business for which its application was made. If a BOOM moves from one business to another, they will need to apply and pay for a new fit and proper test, even if that business is in the same fit and proper sector.

What is the purpose of the fit and proper test?

MSBs and TCSPs are subject to the fit and proper test to make sure the business is suitable to carry out activities within its supervised business sector. The business’s BOOMs are also subject to the fit and proper test to ensure they are suitable people to hold those positions.

What does the test involve?

The test consists of three parts:

Part 1

HMRC will check whether a business or any BOOM has an unspent conviction for a relevant offence.  If so, the business or BOOM will automatically fail the fit and proper test. Relevant offences are listed in Schedule 3 of the Regulations (see the full list here) and include any offences with a dishonesty element, such as theft or fraud, whether committed in the UK or abroad.

Part 2

HMRC will consider whether the business or any BOOM has consistently failed to comply with the Regulations, and/or 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. A single period of non-compliance may be relevant to this consideration if you have failed to comply with a range of requirements under the regulations during that period.

Part 3

HMRC will assess whether the business and any BOOM has adequate skills and experience and has acted, and may be expected to act, with probity. Below is a non-exhaustive list of factors that may be considered under Part 3 of the fit and proper test when making this assessment:

• Skills and experience
• Honesty and integrity, including financial soundness and tax affairs

Skills and Experience

Whether the BOOM can demonstrate that they are suitable to hold the position by specifying: 

• Details of any previous employment within the regulated or supervised sector.
• What specific roles or responsibilities have previously been held that align with the current position.
• Any formal training or qualifications undertaken that support suitability for the role and whether it was obtained in the UK or overseas.
• Details of any skills and experience obtained from previous roles in the regulated or supervised sector and how these will be applied to the role.
• Whether memberships are currently held with trade bodies, forums or any organisations within the regulated or supervised sector. 
• What jurisdiction the memberships are located in.
• Whether they have staff located in the UK that have the requisite skills and experience.
• Whether the BOOM 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 position:
• Are there any other roles or commitments that could conflict with or impact the ability to perform this role effectively?
• Are there any resource gaps that could hinder the ability to perform the role effectively?
• Are there mechanisms in place to escalate issues or seek support when needed?

Probity

Honesty and Integrity

1. Spent convictions

Although an unspent conviction for a relevant offence results in automatic failure of the fit and proper test under Part 1, HMRC may also consider a spent conviction for a relevant offence under Part 3 of the test if it demonstrates a lack of honesty and integrity.

2.  Whether any of the following apply:

• The BOOM or business has been subject to a criminal investigation or criminal proceedings in relation to a relevant offence.
• The BOOM or business has been subject to a civil investigation or civil proceedings, including an adverse finding or any settlement, particularly in connection with any financial or corporate misconduct.
• The BOOM or business has been investigated, disciplined, censured, suspended or criticised by any regulatory or supervisory authority, professional body or government department or agency.
• The BOOM or business has been refused the right to carry on a trade, business or profession requiring a licence, registration, or other authority or has had the relevant authority removed or been the BOOM of a business which has been subject to such action.
• The BOOM has ever been disqualified from acting as a director or disqualified from acting in any managerial capacity.
• The BOOM has allowed the business to carry out regulated activity without the required registration.
• The business has carried out regulated activity without the required registration.  

Transparency and willingness to comply

Whether the BOOM or business has been candid and truthful in all dealings with any regulatory or supervisory authority, professional or government department or agency, and whether they demonstrate a readiness and willingness to comply with the requirements and standards of HMRC and other legal, regulatory, and professional requirements and standards.

Financial soundness

1.    Whether the BOOM or business has been the subject of any judgment debt or award that remains outstanding or was not satisfied as required.

2.    Whether, in the UK or elsewhere, the BOOM has ever:

• Filed for bankruptcy or had a bankruptcy petition presented against them;
• Been adjudged bankrupt by a court;
• Been subject to a Bankruptcy Restrictions Order (BRO) or Interim Bankruptcy Restrictions Order (IBRO); or
• Entered into a Bankruptcy Restrictions Undertaking (BRU).

3.    Whether the BOOM has been a BOOM of a business that has gone into insolvency, liquidation, or administration.

4.    Whether the tax affairs of the business, BOOM or any business or other entity owned, controlled, or managed by them, are up-to-date. HMRC will also have regard to whether any taxes or duties were paid by the due date.

What steps must you take?

• When your business initially applies to register, you must also apply for a fit and proper test for all the business’s BOOMs as part of the process and pay the appropriate fee which will be calculated for you.
• Your business must provide HMRC with any relevant information requested to enable HMRC to determine an application for registration. This includes any information necessary to determine whether your business and its BOOMs are fit and proper, including declaring any unspent relevant convictions and any information relevant to parts 2 and 3 of the fit and proper test set out above.
• If a beneficial owner of the business fails the fit and proper test when the business applies to register, HMRC will refuse to register the business whilst that beneficial owner retains their ownership. HMRC may suspend or cancel the business’s registration if a beneficial owner of the business is found to be not fit and proper after registration. Therefore, if you wish for your application to be reconsidered or for your business to remain on the register in these circumstances, HMRC expects the business to evidence that the relevant beneficial owner has relinquished their ownership, influence and control of the business.
• If any officer or manager of your business fails the fit and proper test when the business applies to register, HMRC will refuse to register the business whilst that officer or manager remains in their role. Therefore, if you wish for your application to be reconsidered in these circumstances you must remove that officer or manager from their role. If an officer or manager is found not to be fit and proper after registration, HMRC may suspend or cancel the business’s registration.
• When a new BOOM takes up their position in your business after it has been registered, you should amend your registration through your Government Gateway or GOV.UK One Login account and apply and pay for a fit and proper test of the BOOM within 30 days of the change (14 days if the new BOOM is the Nominated Officer or Compliance Officer).
• When a BOOM leaves your business, you must inform HMRC within 30 days. This should be done by amending your registration through your Government Gateway or GOV.UK One Login account.
• If you become aware that there has been any change in the information that you have previously provided about a BOOM in your business, or any information that comes to you after registration, that may affect their fit and proper determination (i.e. any change to the information listed in parts 1-3 above) you should notify HMRC at MLRCIT@HMRC.gov.uk.
• If you are an MSB that uses agents to provide your services, you must have measures in place to assess whether any such agents used and their BOOMs would satisfy the fit and proper test. HMRC expects such measures to be taken before you allow any agent to act on your behalf.  

Please see the MSB sector specific guidance in Part 2 for further information on this obligation and the measures that HMRC considers appropriate.

Further guidance

HMRC also publishes more detailed guidance on the fit and proper test which can be found here: HMRC Fit and Proper Guidance. This should be read in conjunction with this guidance.

6.2 Approval Check

Who must undergo the approval checks?

Sole practitioners, and the BOOMS of businesses carrying on activity in the ASP, AMP, EAB, HVD and LAB sectors are subject to approval checks.

What does the check involve?

The approval check involves checking whether sole practitioners or the business’s BOOMs have an unspent criminal conviction for a relevant offence. (i.e. an offence listed in schedule 3 of the Regulations). All BOOMs are required to disclose within their application whether they have an unspent criminal conviction for a relevant offence – in any jurisdiction, not just the UK. HMRC will also check the information provided against its own records and against police records.

If a BOOM does not have an unspent criminal conviction for a relevant offence, they will pass the approval check, although this does not always mean that the business’s application for registration will be accepted.

           

When is the Approval Check carried out?

Approval checks are carried out as part of the initial registration process, and a fee is payable for each approval check. HMRC may also check the criminal records of BOOMs and sole practitioners at any time after registration to ensure their approval remains valid.

Can your business trade whilst HMRC is carrying out Approval Checks?

When your business makes an initial application for registration, it can carry on business and BOOMs named on the application can carry out the duties specified in that application whilst the necessary approval checks are being carried out and the application for registration is being determined.   It is important to be aware, however, that the business must take reasonable care to ensure that no-one is appointed as an officer or manager of the business unless they have been approved, or have applied for approval. If the officer or manager fails the approval check, they must immediately stop working in that position.

HMRC therefore recommends that you do not appoint an officer or manager to the business, or forward an application for approval, unless you are satisfied that the relevant officer or manager does not have an unspent criminal conviction for a relevant offence and that the business takes steps to check this as detailed in the “What steps you must take” section below.

What is the impact of failing the Approval Check?

Where the approval check is carried out as part of your initial registration application

If you are a sole practitioner and fail the approval check, your application will be refused and you cannot carry on regulated activity.

If any BOOM of the business fails the approval check, then the business’s application for registration will be refused. If you wish for your application to be reconsidered in these circumstances, you must remove that BOOM from the business before you reapply. The removed BOOM must have no influence or control over the running of the business. Where a BOOM which has failed the approvals check does have influence or control over the business, HMRC will have reasonable grounds to suspect that the business will be non-compliant, and the application may be refused.

Where the approval check is carried out after registration

If you are a sole practitioner and fail the approval check (for example you are convicted of a Schedule 3 offence) you will immediately cease to be approved, and your business registration will be cancelled with effect from the date of conviction.

If the business only has one BOOM and they fail the approval check, the business’s registration will be cancelled.

If one or more of the business’s beneficial owners fails the approval check, HMRC will cancel the business’s registration if they continue as beneficial owner as defined in the Regulations.

If one or more of your business’s officers or managers fails the approval check, the officer or manager concerned must immediately stop work in that role and must not have any other role in or control of the business that requires approval.

 

What steps must you take?

• When your business initially applies to register, the necessary approval checks will be carried out as part of the registration process and you do not need to take any additional steps. You must fully complete the application and pay the appropriate fee for the approval test which will be calculated for you.
• When a new BOOM joins your business after it has been registered, you must inform HMRC within 30 days, unless the new BOOM is a nominated officer or compliance officer, in which case you must notify HMRC of the appointment within 14 days. The BOOM cannot act in their role unless HMRC have been informed and the relevant fee paid. This should be done by amending your registration through your Government Gateway or GOV.UK One Login account and applying and paying for the new BOOM to be approved. For more information about how to apply, see HMRC approval checks - GOV.UK (www.gov.uk).
• Your business and its BOOMs must provide HMRC with any information requested to enable the approval check to be carried out and must declare any unspent convictions for a relevant offence. If we have questions about your application, we will contact you.
• Your business must take reasonable care to ensure that no one is appointed as an officer or manager of the business unless they have been approved, or have applied for approval and their application has not yet been determined.  HMRC considers that taking such reasonable care should include screening officers and managers for unspent convictions for relevant offences, including overseas convictions, as part of your recruitment, promotion or restructuring processes. As a minimum, this should include the following:
  • A basic DBS (Disclosure and Barring Service) check (or equivalent in Scotland and Northern Ireland) to screen for unspent convictions for relevant offences in the UK; and
  • A requirement that each officer and manager signs a declaration confirming they have no unspent convictions for a relevant offence overseas. A business may also obtain overseas criminal record checks where appropriate. Further guidance on how to conduct overseas criminal records checks can be found here: Guidance on the application process for criminal records checks overseas - GOV.UK.

You should keep sufficient records to demonstrate to HMRC on request that you have taken reasonable care.

The above steps should also minimise the impact on businesses having to replace officers and managers that subsequently fail the approval check.

Your business must take reasonable care to ensure that no-one continues to act as an officer or manager if their approval has ceased to be valid. HMRC considers that taking such reasonable care should include the business implementing the following as a minimum:

• An annual self-declaration process to ensure each officer and manager has not been convicted of a relevant offence, in the UK or overseas; and 
• A requirement for officers and managers to notify the business immediately if they are convicted of a relevant offence.

An approval becomes invalid from the date of conviction for a relevant offence and you must not allow the officer or manager to continue in their role.

If a BOOM is approved but is later convicted of a relevant offence:

• The BOOM must immediately cease acting that capacity
• Your business must tell us within 30 days of the date the business became aware of the BOOM’s conviction
• The BOOM must tell us within 30 days of the date of conviction

When a BOOM leaves your business, you should also amend your registration through your Government Gateway or GOV.UK One Login account.

If you become aware that there has been any change in the information that you have previously provided about a BOOM in your business, or any information that comes to you after registration, that may affect their approval, or cause it to become invalid, you should notify HMRC at MLRCIT@HMRC.gov.uk. 

Important notes: If you have not been approved by HMRC or your approval is no longer valid, it is a criminal offence to act: as a manager or officer of a relevant firm; or as a relevant sole practitioner; or knowingly as a beneficial owner of a relevant firm An approval is invalid if it is obtained by error or dishonesty, for example if an unspent relevant conviction is not disclosed. Different Sector Activity If your business carries on business in an approvals sector and wishes to begin carrying on business in a fit and proper sector, the business and its BOOMs must be registered and deemed by HMRC to be fit and proper persons to carry out the specified roles before commencing that activity. The business must amend its registration details on its Government Gateway or GOV.UK One Login account and pay the relevant fit and proper test fees to facilitate this.