Do UBOs of Part 4A Regulated Firms Need DBS Checks?

6 Aug

Part 4A regulated firms are those authorized by the FCA under Part 4A of the Financial Services and Markets Act 2000 (FSMA), granting permission to conduct regulated activities (e.g., investment management, insurance, banking). These firms are subject to the Senior Managers and Certification Regime (SM&CR). UBOs, defined under MLR 2017 as individuals with significant control (e.g., >25% ownership or voting rights), are distinct from SMF applicants or controllers but may overlap in smaller firms. Below, we analyse whether UBOs of Part 4A firms require DBS checks, considering FCA and MLR requirements.

Analysis

FCA Requirements for UBOs:

SM&CR and “Fit and Proper” Test: The FCA’s SM&CR applies to SMF applicants and Certified Persons in Part 4A firms, requiring Standard DBS checks for SMFs (e.g., SMF1 Chief Executive, SMF16 Compliance Oversight) to assess criminal history as part of the “fit and proper” test (FCA Handbook, FIT 2.1). UBOs, however, are not automatically subject to SM&CR unless they also hold an SMF role or are classified as controllers under FSMA.
Controllers under FSMA: A controller is an individual or entity acquiring or increasing significant influence over a Part 4A firm (e.g., >10% voting power). Since January 17, 2025, the FCA requires criminal background checks (typically Basic or Standard DBS, depending on eligibility) for controllers as part of the change in control approval process (FCA Handbook, SUP 11). If a UBO is also a controller (e.g., holding >25% ownership), a Basic DBS check is typically sufficient, as they may not require the deeper scrutiny of a Standard check unless they perform an SMF role.
UBOs Not Acting as Controllers or SMFs: For UBOs who are passive investors (e.g., owning >25% but not actively managing the firm), the FCA does not mandate DBS checks unless they trigger a controller notification or are subject to SM&CR. However, firms may voluntarily conduct Basic DBS checks on UBOs as part of enhanced due diligence to mitigate financial crime risks.

MLR 2017 Requirements:

Under MLR 2017, Part 4A firms are subject to MLR for anti-money laundering (AML) and counter-terrorism financing (CTF). Regulation 26 requires firms to conduct customer due diligence (CDD) on UBOs, which may include identity verification and screening for criminality. While MLR does not explicitly mandate DBS checks for UBOs, Basic DBS checks are increasingly used to verify unspent convictions, especially for high-risk sectors like cryptoassets or investment management, aligning with HMRC and FCA expectations for robust CDD.
Annex 1 firms (e.g., cryptoasset businesses, lenders), should take the same approach.

Practical Need for DBS Checks for UBOs:

When Required: UBOs of Part 4A firms need Basic DBS checks if they are controllers requiring FCA approval (e.g., >10% voting power) or if the firm’s AML policy mandates criminal background checks for UBOs to comply with MLR 2017. Standard DBS checks are only required if the UBO also holds an SMF role, which is eligible under the Rehabilitation of Offenders Act 1974 (Exceptions) Order.
Market Practice: Many Part 4A firms conduct Basic DBS checks on UBOs as part of enhanced CDD, even if not strictly required, to demonstrate compliance with FCA’s financial crime prevention rules (FCA Handbook, SYSC 6.3) and MLR 2017.

Conclusion: UBOs of Part 4A regulated firms do not universally require DBS checks but need Basic DBS checks if they are controllers subject to FCA change in control approval (post-January 17, 2025) or as part of MLR-compliant CDD. Standard DBS checks apply only if UBOs hold SMF roles.

Fundsure can offer Basic and Standard DBS checks, Digital ID verification, AML/KYC screening and Adverse Financial Checks for those wishing to be controllers, certain UBOs, certified persons and senior managers subject to the SMCR.