Malaysia Guidelines on Fit and Proper Requirements for Key Responsible Persons in the Financial Industry –Overview and Summary of Requirements

• By: Staff Editor
• Date: April 26, 2013

1. Directors
2. Members of Shariah Committee
3. Chief executive officers (CEO)
4. Any person performing a senior management function who has primary or significant responsibility for the management and performance of significant business activities of the FI
5. Any person who has primary or significant responsibility for key control functions.
6. Any person responsible for key functions that are performed outside of the FI such as under centralized group and outsourced key functions.

• The fit and proper policies and procedures should incorporate:

1. Minimum fit and proper criteria
2. Procedures and processes for conducting fit and proper assessments
3. Factors considered in assessing whether a person is fit and proper for a specific position
4. Actions, including internal governance process requirements, to be taken where a key responsible person is assessed to be no longer fit and proper for a specific position
5. List of key responsible persons for the FI.

• The fit and proper policies and procedures should be approved by the Board.
• The fit and proper policies and procedures should be periodically reviewed.
• The Board should monitor and ensure on-going compliance with the internal policies and procedures such as policies on ethical behavior and codes of conduct.
• Reasonable steps should be taken to ensure that each key responsible person understands the FI’s fit and proper policy requirements and their obligation to continue to meet them on an on-going basis.
• The board and National Committee (NC) are primarily responsible for ensuring that all key responsible persons fulfill fit and proper requirements and for conducting assessments of the fitness and propriety of directors, members of Shariah Committee and the CEO.
• For the other key responsible persons, it is the responsibility of CEO or a designated committee.
• The fit and proper assessments on each key responsible person should be conducted both prior to initial appointments and at regular intervals, at least annually.
• The NC should review the list of key responsible persons for the FI to ensure the list is comprehensive and takes into account all key positions within the FI.
• The fit and proper assessments should be supported by relevant information about a key responsible person. This information should be taken either from the person being assessed or from independent sources.
• FI should retain the documentation of fit and proper assessments for each key responsible person for a reasonable period of time.
• FIs should safeguard the confidentiality of information collected and assessments made.
• For the purpose of supervisory review, FI should make readily available the following information to the BNM :

1. FI’s internal fit and proper policies and procedures
2. List of key responsible persons within the FI
3. Documentation of fit and proper assessment for each key responsible person

• Where the NC has assessed that a person:

1. is not fit and proper for a position, the Board should not appoint the person to the said position
2. is no longer fit and proper for a position; the Board should take reasonable steps to remove the person from such position as soon as practicable.

• For the purpose of establishing whether a person is fit and proper to hold a key responsible person position, the FI should have regard to the person’s:

1. Probity, personal integrity and reputation- Person should possess personal qualities such as honesty, integrity, diligence, independence of mind and fairness.
2. Competence and capability– Person should have the necessary skills, experience, ability and commitment to carry out the role.
3. Financial integrity– Person should manage his debts or financial affairs prudently.

• In determining whether a person meets the fit and proper requirements, the considerations set out under these guidelines should be assessed individually as well as on cumulative basis.
• Failure to meet one indicator does not necessarily mean failure to meet the fit and proper criteria.
• FIs should consider the specific circumstances surrounding a person’s failure to meet specific indicators, including the lapse of time since the occurrence of events and the significance of the event from the perspective of potential risks posed to the FI.
• Considerations relevant to the assessment of the fitness and propriety of key responsible persons may vary depending on the degree of their influence and responsibilities in the affairs of the FI.

• In assessing a person’s level of probity, integrity and reputation to hold a position of a key responsible person, the NC should consider following matters:

1. Whether the person is or has been the subject of any proceedings of a disciplinary or criminal nature, or has been notified of any impending proceedings or of any investigations, which might lead to such proceedings.
2. Whether the person has contravened any provision made by or under any written law designed to protect members of the public against financial loss due to dishonesty, incompetence or malpractice.
3. Whether the person has contravened any of the requirements and standards of a regulatory body, professional body, government or its agencies.
4. Whether the person, or any business in which he has a controlling interest or exercises significant influence, has been investigated, disciplined, suspended or reprimanded by a regulatory or professional body, a court or tribunal, whether publicly or privately.
5. Whether the person has been engaged in any business practices which are deceitful, oppressive or otherwise improper or which otherwise reflect discredit on his professional conduct.
6. Whether the person has been dismissed, asked to resign or has resigned from employment or from a position of trust, fiduciary appointment or similar position because of questions about his honesty and integrity.
7. Whether the person has been associated, in ownership or management capacity, with a company, partnership or other business association that has been refused registration, authorization, membership or a license to conduct any trade, business or profession, or has had that registration, authorization, membership or license revoked, withdrawn or terminated.
8. Whether the person has held a position of responsibility in the management of a business that has gone into receivership, insolvency, or involuntary liquidation while the person was connected with that business.
9. Whether the person has been a director of, or directly concerned in the management of, any corporation which is being or has been wound up by a court or other authority competent to do so within or outside Malaysia, or of any licensed institution, the license of which has been revoked under any written law.
10. Whether, in the past, the person has acted unfairly or dishonestly in his dealings with his customers, employer, auditors and regulatory authorities.
11. Whether the person has at any time shown a strong objection or lack of willingness to cooperate with regulatory authorities and failure to comply with legal, regulatory and professional requirements and standards, including compliance with tax requirements and obligations.
12. Whether a person has contributed significantly to the failure of an organization or a business unit.
13. Whether the person has at any time shown strong objection or a lack of willingness to maintain effective internal control systems and risk management practices
14. Whether the person is free from any business or other relationship which could materially pose a conflict of interest or interfere with the exercise of his judgment when acting in the capacity of a key responsible person which would be disadvantageous to the FI or the FI’s interest.

• In assessing a person’s competence and capability, the NC should consider matters including, but not limited to the following:

1. Whether the person has the appropriate qualification, training, skills, practical experience and commitment to effectively fulfill the role and responsibilities of the position and in the case of directors, having regard to their other commitments.
2. Whether the person has satisfactory past performance or expertise in the nature of the business being conducted.

• In assessing a person’s financial integrity, the NC must consider all relevant factors, including but not limited to the following:

1. Whether the person has been and will be able to fulfill his financial obligations, whether in Malaysia or elsewhere, as and when they fall due
2. Whether the person has been the subject of a judgment debt which is unsatisfied, either in whole or in part, whether in Malaysia or elsewhere.

• The fact that a person may be of limited financial means does not in itself, affect the person’s ability to satisfy the financial integrity criteria.

Read the Malaysia Guidelines for Fit and Proper Requirements for Key Responsible Posts in the Financial Industry in full here.