Fit and proper test

Regulators apply the test to two groups: the management body, and anyone holding a qualifying stake. Under MiCA that stake threshold is 10% of a firm's capital or voting rights, set in Article 3(1)(36), and failing the test is a mandatory ground for refusing authorisation under Article 63(10). An exchange that cleared it has had its directors and its 10% owners named to a regulator and checked.

How it works

The fit and proper test has no operative article of its own in Regulation (EU) 2023/1114, the EU regulation on markets in crypto-assets. The phrase lives in the recitals: recital 81 says members of the management body of crypto-asset service providers "should be fit and proper" and should not have been convicted of any money laundering or terrorist financing offence, or any other offence affecting their good repute. What binds is Article 68.

Article 68(1) sets three limbs for management body members: sufficiently good repute, appropriate knowledge, skills and experience both individually and collectively, and a demonstrated ability to commit sufficient time to the duties. Article 68(2) carries the good repute limb across to shareholders and members, direct or indirect, that hold qualifying holdings. Article 34 imposes the matching pair on issuers of asset-referenced tokens, and recital 51 uses the same wording for them.

The 10% line decides who is inside the test. Article 3(1)(36) defines a qualifying holding as at least 10% of the capital or voting rights, or any holding large enough to exercise significant influence over management, so a silent 9% investor stays outside it and a 10% one does not.

Refusal is not discretionary once the test fails. Article 63(10)(b) and (c) say competent authorities shall refuse authorisation where the management body misses the Article 68(1) criteria or the qualifying holders miss the good repute standard in Article 68(2). Article 63(11) instructed ESMA and EBA to publish joint suitability guidelines by 30 June 2024.

Nor does the test end at the licence. Article 83(1) makes anyone proposing to acquire or increase a qualifying holding so that it reaches 20%, 30% or 50% notify the regulator in advance, Article 84(1) leads the assessment criteria with the reputation of the proposed acquirer, and Article 83(4) gives the regulator 60 working days to reach a view.

Where you see it

Fit and proper material is usually a separate filing rather than a box on the main licence form. Finland's Finanssivalvonta (FIN-FSA) lists "Management competence and fit & proper assessments" and "Owner fit & proper assessments" among the key contents of a crypto-asset service provider application, citing Articles 7 and 8 of Commission Delegated Regulation (EU) 2025/305, Commission Delegated Regulation (EU) 2025/414 for owners, and the joint EBA and ESMA guidelines EBA/GL/2024/09. The regulator then asks for those Fit&Proper materials, which it describes as concerning reliability and suitability, to reach its registry by separate e-mail on its own declaration form rather than as an attachment to the application.

FIN-FSA also charges its processing fee for a negative decision as well as a positive one, so a founder whose board cannot clear the test pays for the refusal.

Fit and proper test vs Know Your Customer

A fit and proper test and Know Your Customer sit at opposite ends of the same account relationship. KYC is what a licensed firm does to you before it opens your account. A fit and proper test is what the regulator does to that firm's own directors and its 10% owners, before the firm exists as a licensed entity. Clearing an exchange's identity checks tells you nothing about whether its board cleared Article 68; that answer sits on the national competent authority's public register.