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Version date: 20 April 2018 - onwards

Annex E: National authorities' approaches to addressing "bad apples"

1. Fitness and propriety assessments

The scope of fitness and propriety regimes tends to be confined to firms’ board members, senior executives, head of internal control functions and individuals in predetermined risk-taking or customer-facing roles. Consequently, whilst fitness and propriety assessments can help clarify the roles, responsibilities and accountability of key decision-makers and certain employees, their scope will not typically reach all potential "rolling bad apples".

In some jurisdictions, in addition to assessing the fitness and propriety of directors and senior managers, supervisory authorities must consent to the appointment or continuing employment of individuals regardless of seniority in specific circumstances, such as bankruptcy or a prior conviction for certain crimes. For instance, in the United States, Section 19 of the Federal Deposit Insurance Act prohibits individuals convicted of a criminal offense involving dishonesty, breach of trust, money laundering, or drugs from participating in the affairs of an insured depository institution without a Federal banking regulator’s previous written consent. Similarly, in Hong Kong, Section 73 of the Banking Ordinance bars employment at authorized institutions without the consent of the HKMA if a person is bankrupt, has been convicted of a crime of dishonesty, or was previously a director, chief executive or manager in an insolvent authorized institution.

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