Assessing Competence and Integrity: The Power of the “Fit and Proper” Test

‘Those at the Central Bank tasked with assessing whether a person is “fit and proper” must themselves be held to the same standard’

By Lex

The “Fit and Proper” test is a crucial regulatory tool for ensuring that individuals in positions of influence within the financial sector possess the necessary competence and integrity. This concept, empowered by central banks guidelines, has become a focal point of public debate, especially concerning the appointment of bank officials. While its primary purpose is to safeguard financial stability, the principles behind the test — accountability, ethics, and due diligence — raise important questions about their potential application to public office and government appointments. Lex’s analysis examines the test’s legal basis, its practical application, the challenges of transparency and impartiality, and its broader implications for public governance.

* The concept of “Fit and Proper” test has gained prominence and entered public discussion following recent debates over the appointment of bank officials. What legislation empowers it, and why is it so important?

In Mauritius, the Banking Act of 2004 and the Bank of Mauritius Act 2004 are the key pieces of legislation that empower the “Fit and Proper” test. These acts give the central bank, the Bank of Mauritius, the legal authority to approve or reject appointments of individuals to senior positions in financial institutions. The requirement applies to key figures such as directors, senior officers, and significant shareholders.

The importance of the Test can be gauged from the ‘Guideline on Fit and Proper Person’,  issued by the Central Bank, which states: “The probity and competence of senior officers, directors and shareholders who exercise significant influence on financial institutions regulated by the Bank of Mauritius are not only of strong interest to the Bank of Mauritius but also to the institutions themselves. As such, persons in these positions must have the necessary qualities, competencies and experience that will allow them to perform the duties and carry out the responsibilities required of the position in the most effective manner.”

* We understand that the ultimate responsibility for conducting and approving “Fit and Proper” tests rests entirely with the regulator. To what extent is this process transparent? If not, what is the scope for making it transparent?

The proper functioning of the financial system hinges on the compliance of directors and other stakeholders with the Central Bank’s guidelines. This is not merely about transparency; it is fundamentally about ensuring that the right people whose probity is not challenged occupy sensitive positions in the financial sector.

* The ‘Fit and Proper’ test is meant to ensure only suitable individuals lead financial institutions. However, this process requires a significant measure of judgment on the part of regulators, isn’t it?

The “Fit and Proper” test is a vital gate-keeping function of central banks, designed to ensure that only suitable individuals lead financial institutions. The process indeed requires a significant measure of judgment because the assessment of an individual’s character, competence, and integrity is not always a simple checklist exercise.

In the Guideline, a “fit and proper person” is defined as someone who, when subjected to the criteria of the Guideline and any other criteria prescribed by the board of directors, is likely to be in a position to discharge their responsibilities in a competent, honest, and correct manner in the best interests of the institution. Regulators should ensure that these criteria are met.

* Given the subjective nature of a “good reputation” and “good character” as criteria for the “Fit and Proper” test, shouldn’t the government in its role of arbiter ensure that regulators’ assessments are not influenced by personal biases, political pressure, or social connections?

It must be presumed that regulators would assess a person objectively and, if need be, make public the reasons why a person is not fit and proper. If there is any suspicion that the regulators themselves are acting under political influence or are biased, they would not be fair in assessing whether a person is fit and proper.

* When an individual or financial institution believes that a regulatory assessment by the BOM or the FSC has been arbitrary, based on irrelevant considerations, or has ignored relevant information, they can seek redress through the courts, including the Privy Council. However, this process is often lengthy and expensive, which can create a significant power imbalance. What are your thoughts on this question?

Pursuing legal action against a regulator is often an uphill battle due to several key challenges. The process is financially demanding and time-consuming, which can create an overwhelming barrier for individuals and smaller firms, ultimately giving the regulator undue influence.

Furthermore, while “bias” and “irrelevant factors” are valid grounds for an appeal, the burden of proof is high and can be very difficult for the challenging party to meet.

* It is also understood that when licensing a new bank, central banks should also meticulously assess the “Fit and Proper” status of its significant shareholders, board of directors, and senior management. Considering recent bank failures, such as that of Silver Bank, and the high number of bad loans affecting some of our local banks, to what extent could it be said that the Bank of Mauritius’s ‘Fit and Proper’ tests proven to be truly effective in preventing systemic risks?

If the regulator, which is the Bank of Mauritius, fails in its objective pursuit of properly assessing all factors, then the whole system crumbles. In the case of Silver Bank, it is clear that the previous leaders of the Central Bank failed in their duty of due diligence. It is possible they acted under political pressure. We should not forget that many public bodies were ordered by the MSM government to make deposits at the Silver Bank.

* The recent deadlock concerning the appointment of a chairman and CEO for the State Bank of Mauritius (SBM) has been in recent weeks a focal point for social media activists, who have also called into question the credentials of the officials responsible for undertaking the “fit and proper” assessments. Would it be therefore a legitimate and pertinent question to ask whether those who perform the regulatory function are themselves “fit and proper”?

Those at the Central Bank tasked with assessing whether a person is “fit and proper” must themselves be held to the same standard. If there is any suspicion of impropriety on their part –such as bias, personal animosity, or a desire for revenge — they should be disqualified from the assessment process.

* Governments and political parties could perhaps take inspiration from the “Fit and Proper” test concept to ensure that the men and women chosen for public office, including positions in government, parastatal bodies, State-Owned Enterprises, or as political candidates and Cabinet members, meet the necessary criteria. Wouldn’t that be in public interest?

Applying a “Fit and Proper” test to individuals in public office would be in the public interest by promoting accountability and trust. Such a test would ensure that leaders not only have the necessary skills and competence for their roles but also possess an ethical and moral foundation. It would vet candidates for a history of dishonesty, corruption, or other misconduct, acting as a critical deterrent against appointing individuals with questionable pasts. By vetting leaders for integrity and competence, this process could help rebuild public trust and strengthen key public service institutions.

However, implementing such a test in politics is far more complex than in the financial sector. The main challenge is the subjective nature of defining “proper” when dealing with political integrity and independence. There is a high risk that the test could be used as a political weapon or be compromised by bias, as it would be difficult to establish a truly impartial, non-partisan body to conduct the assessments. Furthermore, a “fit and proper” test could be seen as an elitist mechanism that potentially infringes on the democratic right of citizens to choose their own representatives, creating a fundamental tension between vetting for public trust and upholding democratic principles.

Mauritius Times ePaper Friday 22 August 2025