FCA wants compulsory criminal background checks

The FCA is to consult on introducing compulsory criminal background checks on firm owners and controllers applying for authorisation from January 2025. The watchdog currently carries out only risk-based checks on some applicants at present. However, it says it is out of step with many other bodies which require compulsory DBS (Disclosure and Barring Service) checks. In a Quarterly Consultation paper CP24/11 published this week, the FCA says the The Financial Action Task Force (FATF), an anti-corruption body, has recommended that the FCA consider the wider use of criminal background checks on owners and controllers of financial institutions. The FCA says in its consultation: “This recommendation is aimed at ensuring that criminals and their associates are prevented from owning or controlling financial institutions.” At present the FCA only conducts criminal background checks on a risk-based approach. This means that checks are only performed when specific concerns about an individual’s fitness and propriety arise. Other bodies, such as statutory anti-money laundering (AML) and counter-terrorist financing (CFT) supervisors, such as HMRC and the Gambling Commission, carry out checks routinely. The FCA and the Prudential Regulation Authority (PRA)) now propose to require controllers and beneficial owners to obtain criminal background checks from the Disclosure and Barring Service (DBS) (or equivalent for persons outside of England and Wales). The requirement would apply to those making an application for authorisation or registration with the FCA and for a notice of an intended acquisition or increase in control (‘change in control’ or ‘CIC’). The new proposals would apply to a range of business owners, including controllers of firms applying to become authorised persons and beneficial owners of financial institutions and cryptoasset businesses registered under the Money Laundering Regulations (MLRs). It would not apply to controllers of any Appointed Rep, not will the proposals replace any existing processes for Senior Management Functions’ (SMFs) holders who may also propose to be a controller within these areas, the FCA said. The FCA saw 4,400 applications for new authorisation and CIC (change in control) in 2022 and 3,500 in 2022. It expects between 3,000 and 12,100 additional DBS checks a year, costing all firms a total of between £53,000 and £217,000 a year (between £13 and £55, on average per firm per year). The FCA is seeking comments on the proposals by 12 August.

FCA wants compulsory criminal background checks

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