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FCA considers wider use of criminal background checks for owners and controllers of financial institutions

Posted on by darion

The Financial Action Task Force (FATF) has recommended that the UK Financial Conduct Authority (FCA) consider the wider use of criminal background checks for owners and controllers of financial institutions.

The purpose of this recommendation is to ensure that criminals and their associates are not able to own or control financial institutions.

The FCA currently conducts criminal background checks using a risk-based approach, meaning checks are carried out where there are specific concerns about an individual’s fitness and propriety.

In line with the FATF recommendation, the FCA now proposes to require controllers and beneficial owners to obtain a criminal background check from the Disclosure and Barring Service (DBS) (or equivalent for individuals outside England and Wales). This requirement will apply to individuals applying for authorisation or registration with the FCA and for notification of a proposed acquisition or increase in control (a ‘change of control’ or ‘CIC’).

The FCA proposals will apply to:

  • potential controllers making a notification to CIC under Part XII of the Financial Services and Markets Act 2000 (FSMA)
  • auditors of firms applying for FSMA (New Firm Authorisations (NFA)) authorisation status (both MiFID and non-MiFID)
  • persons having a qualified share in a payment institution or electronic money institution
  • beneficiaries of Schedule 1 financial institutions and crypto-asset companies registered under Regulation 54(1A) of the Money Laundering Regulations (MLR)
  • persons making a CIC notification under the MLR, the Payment Services Regulations 2017 (PSR) and the Electronic Money Regulations 2011 (EMR)
  • administrators submitting an application or notification to the PRA where the FCA is required to provide consent or consultation (excluding Appointed Representatives (ARs))

Subject to the advice from this consultation, the FCA proposes that this requirement will apply to all new applications or notifications made from January 2025 onwards. The change will not affect any applications or notifications made before that date, including those that had not yet been determined at the time the new requirements were introduced.

A standard DBS contains details of both spent and unspent convictions, cautions, reprimands and warnings held on the Police National Computer System (PNC), which are not subject to filtering.

From January 2025, where an individual has made an application/notification within the previous 6 months and a DBS check has been carried out, a new DBS check will not be required.

be required. In relation to the Change of Permissions Process (VoP), where a firm is already authorised or registered, the FCA will not require a firm to request a DBS check, however the firm should continue to ensure the fitness of its controllers and owners.

More information about the proposal can be found here.