Fit and Proper: Are You Complying With GPS 520?

Prudential Standard GPS 520 requires that people in positions of responsibility in the insurance industry be ‘fit and proper’.

A responsible person is defined as a director, senior manager, appointed auditor, or any person who plays a significant role in the running of an insurance company.

Whether a person is ‘fit and proper’ must be determined by the organisation itself, which is required by the Australian Prudential Regulation Authority (APRA) to assess the responsible person(s) within its ranks, using a set of pre-determined competencies.

These include any training or qualifications required to hold the position and qualities considered necessary to perform the role such as competence, diligence, honesty, integrity and judgement.

So who are the responsible persons in your organisation and have they been deemed ‘fit and proper’ to hold their positions?

If you don’t know or believe your organisation has no Fit and Proper policy, you should consider some form of compliance training, as penalties for breaches of prudential standards can be significant.

As well as the criteria for each responsible position, a Fit and Proper policy needs to contain provisions for ‘whistleblowers’. This means ensuring that anyone who reports a responsible person for improper behaviour will not be penalised for doing so. Far from penalising whistleblowers, your policy should be to actively encourage them as a means of ensuring accountability and transparency within the organisation.

The concept of ‘fit and proper’ is not a new one and not exclusive to the insurance industry. It is used to assess suitability of candidates in many other industries. A fit and proper person check is required for occupations such as pilots, bus and taxi drivers, teachers, medical staff and social workers, as well as for the granting of some licences and permits, such as a firearms licence.

As well as checking for criminal history, mental stability and the like, such a test usually incorporates similar considerations of honesty (the ability to perform the role impartially), knowledge (the skills and experience to know what needs to be done) and diligence (the ability to perform the role consistently and conscientiously).

Administering an organisation’s Fit and Proper policy is often the responsibility of the HR Manager, who is required to keep appropriate documentation of each fit and proper assessment. This documentation would normally include:

• A police check
• A fit and proper declaration by the person involved
• A bankruptcy check
• A disqualified persons check
• An eligibility declaration by the directors.

Details kept on each responsible person would also include:

• Name
• Date of birth
• Position and responsibilities
• Statement that the person has been assessed under the criteria.

It is in everyone’s best interests to abide by Prudential Standard GPS 520 and compliance training on this subject should be part of every organisation’s learning management system.

This is not just to avoid penalties incurred through breaches, but to reduce the likelihood of an ‘improper’ person having a detrimental effect on your organisation’s reputation or finances.