Are You “Fit and Proper”? On the Assessment of Suitability by the Polish Financial Supervision Authority (KNF)

From the perspective of financial supervision, it is crucial not only to oversee organisational structures but also to thoroughly analyse the competencies, experience, and predispositions of members of management bodies. The Polish Financial Supervision Authority (Komisja Nadzoru Finansowego – KNF), tasked with safeguarding to monitor the stability and transparency of the financial market, conducts a formalised process of assessing individuals appointed to the governing bodies of supervised entities.

The methodology of the suitability assessment, commonly referred to as the “fit and proper” test, constitutes an integral part of the supervisory framework. Its purpose is to evaluate whether the qualifications, experience, and ethical stance of candidates comply with corporate governance standards and ensure effective risk management.

The term “fit and proper” may be interpreted as “competent and suitable”, where “fit” refers to the substantive ability to perform a given role (i.e. knowledge, experience, and skills), while “proper” denotes ethical and reputational suitability – understood, inter alia, as the ability to act in the institution’s best interest, maintaining independence and avoiding conflicts of interest.

The assessment of suitability applies to members of governing bodies of entities supervised by the KNF, in particular:

• banks,
• institutional protection scheme management entities,
• insurance and reinsurance undertakings,
• pension fund companies,
• brokerage houses,
• investment fund management companies.

The primary users of the methodology include supervisory boards, nomination committees, management boards, and organisational units responsible for recruitment and assessment processes – in particular, HR departments and compliance teams.

What Does the “Fit and Proper” Assessment Involve?

The suitability assessment is a multifaceted review of an individual in terms of their qualifications, experience, reputation, and independence. The KNF does not limit itself to analysing formal criteria such as academic titles or previous positions – what matters most is the actual ability to perform a given function within a specific organisation.

This assessment takes into account the broader context – it encompasses not only individual competencies but also whether the person complements the skills composition of the entire governing body and contributes to its effective functioning.

How Does the KNF Assess Candidates?

The assessment process is comprehensive, and many of the criteria applied are qualitative in nature. Each assessment is individualised and pertains to a specific function within a given entity – whether it concerns the initial appointment (primary assessment) or the continuation of an existing mandate (secondary assessment).

The assessment conducted by the KNF and the Office of the KNF (UKNF) is closely linked to both ongoing and on-site supervision of financial institutions. The evaluation takes into account the full range of traits, predispositions, events, and circumstances that together form the profile of a given individual.

As part of the individual assessment, factors such as professional experience, education, and the candidate’s reputation are analysed. Not only previous positions, but also their complexity and scope of responsibility are relevant – the emphasis is placed on the quality of experience, rather than merely the length of service.

The second key component is reputation, understood as the absence of any circumstances that could call into question the integrity, trustworthiness, or ethical standards of the candidate. The assessment considers not only a person’s criminal record but also behaviours, attitudes, and practices that could indicate a lack of transparency or questionable morality.

Another relevant factor is so-called time commitment – the KNF verifies whether the candidate is able to reliably and effectively perform the assigned duties, taking into account other held functions and obligations.

When Is an Assessment Required? Key Triggering Events

The suitability assessment is not a one-time event – it is a continuous process triggered each time certain specific events occur. According to the KNF’s methodology, the obligation to conduct an assessment arises particularly in the following cases:

• Nomination to a position – a primary assessment conducted prior to appointing an individual to a function in a governing body of a supervised entity.
• Reappointment or extension of a mandate – continuation of a function requires a renewed assessment (secondary assessment).
• Significant change in responsibilities – e.g. assuming a new role within the same body (such as promotion from board member to CEO).
• Changes in the organisational or ownership structure – if such changes affect the institution’s risk profile or mode of operation.
• Changes in the situation of the assessed person – e.g. the emergence of new circumstances that may affect their reputation, independence, or ability to perform their duties (such as criminal or disciplinary proceedings, significant changes in financial status, or conflicts of interest).
• Findings from supervisory or inspection activities – if the KNF or UKNF deems, in the course of its supervisory work, that a renewed assessment is necessary.
• Market signals or internal sources – such as information from whistleblowers, internal audit findings, or media reports that may undermine trust in a member of the governing body.

Why Is This Important?

For financial institutions, the “fit and proper” test serves primarily to systematise and streamline applicable regulatory requirements, while strengthening awareness and the quality of staffing decisions.

This process also holds significant value for the broader financial market. Its benefits include:

• supporting the development of competencies among members of governing bodies of supervised institutions,
• reinforcing the accountability of individuals in key positions,
• ensuring transparent and uniform operating standards (the so-called “level playing field”),
• increasing transparency and predictability of the entire assessment process.

Conclusion

The “fit and proper” assessment primarily serves a preventive function – its goal is not to restrict market development but to mitigate risks associated with the improper management of financial institutions. What proves essential is a systemic approach, which includes professional candidate selection, a transparent and well-documented procedure, and conscious management of competencies and diversity within the governing bodies of supervised entities.

Only such an approach enables the formation of effective management teams – prepared to meet the growing expectations of the market, clients, and supervisory authorities.