Fit-and-Proper vs. Reliability Check: KWG § 25c Explained

Three terms that are often confused: Fit-and-Proper, reliability check, and § 25c KWG. For compliance officers in banks and financial institutions, it is crucial to know the difference — and where they overlap.

Fit-and-Proper: The Concept

“Fit and Proper” is a concept established across Europe: people in key functions at financial institutions must be professionally suitable (fit) and personally reliable (proper).

“Fit” — Professional Suitability

• Professional qualification (degree, relevant professional experience)

• Professional competence for the specific role

• Experience in comparable positions

• Proof of continuing professional development

“Proper” — Personal Reliability

• No relevant convictions

• No insolvency history

• No conflicts of interest

• No issues on sanctions lists or PEP status

• Integrity in both professional and private life

§ 25c KWG: The German Implementation

§ 25c KWG (German Banking Act) sets out the requirements for managing directors and supervisory board members of German banks and financial institutions. It is the concrete German implementation of the Fit-and-Proper principle.

What § 25c KWG Requires

Professional suitability:

• At least three years of professional experience in a comparable function

• Relevant specialist knowledge in banking, insurance, or capital markets law (depending on the role)

• Leadership and management experience

Personal reliability:

• No criminal convictions (especially in the area of white-collar crime, property crimes, money laundering)

• No pending criminal proceedings

• No insolvency proceedings in the last 10 years

• No regulatory disciplinary proceedings

Reliability Check: The Broader Term

“Reliability check” is a broader term than Fit-and-Proper. It refers to assessing a person’s integrity in the broadest sense — regardless of whether the role is regulated or not.

A reliability check typically includes:

• Identity verification

• Credit check (where financial responsibility is involved)

• Criminal record check

• Sanctions list and PEP screening

• Adverse media screening

• Reference check

Legal bases (depending on context):

• § 25c KWG (financial sector)

• § 7 GwG (money laundering officers)

• § 24 VAG (insurance)

• § 72a SGB VIII (education-related professions)

• SÜG (security-sensitive positions)

• Private-law reliability check (voluntary, for positions of trust)

Where Is the Difference?

Who Must Pass the Fit-and-Proper Assessment?

Under § 25c KWG and analogous provisions:

• Managing directors of banks (management board members, managing directors)

• Supervisory board members of banks

• Members of management of insurance companies (VAG)

• Executives in capital management companies (KAGB)

• Managing directors of payment services providers (ZAG)

• Compliance officers in regulated institutions (depending on the role)

• Money laundering officers (GwG § 7)

Fit-and-Proper in Switzerland, Austria, and Across the EU

Switzerland — FINMA Fit-and-Proper Assessment (Art. 3 BankG)

The Swiss equivalent of § 25c KWG is the FINMA fit-and-proper assessment. Legal basis: Art. 3 BankG (banks), Art. 11 FinIG (financial institutions), Art. 14 VAG (insurers). The board, board of directors, and executive management are assessed for “guarantee of proper business conduct.” A rejected fit-and-proper assessment can lead to refusal or withdrawal of authorization. The process is less formalized than with BaFin, but comparable in substance.

Austria — FMA + BWG/VAG/WAG

The Austrian Financial Market Authority (FMA) carries out fit-and-proper assessments under the Banking Act (BWG § 5), VAG, and WAG. The requirements are aligned with CRD and EBA guidelines. A particular feature in Austria: with every FMA change — not just at the initial appointment — the assessment is carried out again.

EU-wide — EBA-ESMA + CRD VI

With the EBA-ESMA Joint Guidelines on Suitability 2024 and CRD VI, uniform standards are being created across the EU. New from 2026: CFOs and Heads of Control Functions fall under Fit-and-Proper EU-wide — no longer just managing directors and supervisory board members. For cross-border institutions, this means a consistent assessment framework must be documented in a uniform way across the EU.

From January 2026: Stricter Requirements

BaFin has significantly tightened its Fit-and-Proper requirements for 2026:

1. Expanded scope of persons: Not only managing directors, but also compliance officers and key second-line roles

2. Ongoing review: A one-time assessment at appointment is no longer enough. Continuous monitoring (sanctions, PEP, adverse media) is mandatory

3. Personal liability: Managing directors are personally liable if the assessment is inadequate — including retroactively for people hired before January 2026

Practical Implementation: How to Do It Right

1. Create a role matrix

Which roles in the institution fall under § 25c KWG, which under § 7 GwG, and which are relevant “only” for a reliability check?

2. Define the depth of review per role

• Managing directors: full Fit-and-Proper assessment under § 25c KWG

• Compliance officers: reliability check according to BaFin guidance

• Employees in sensitive areas (credit, money-laundering reporting office): enhanced review

• Other employees: standard pre-employment check

3. Automate the process

Manual review across 100+ roles is not scalable and is prone to errors. Automated screening with audit-proof documentation is mandatory.

4. Ongoing monitoring

At least monthly: sanctions list matching, PEP status, adverse media. If anything stands out, escalate immediately to Compliance.

5. BaFin-auditable documentation

Every review with timestamp, source, and result. Retention period: at least 5 years.

Indicium for Fit-and-Proper Workflows

Indicium covers all review areas of § 25c KWG and general reliability checks:

• Identity, qualifications, references

• Criminal records, insolvency status

• Sanctions lists (EU, UN, OFAC) with ongoing monitoring

• PEP screening including family members

• Adverse media screening

• BaFin-compliant, audit-proof documentation

• Integration into HR systems (SAP, Workday, Personio)

• All compliance documents in the Trust Center at trust.indicium.ag

Conclusion

Fit-and-Proper and reliability checks overlap, but they are legally and operationally different. For financial institutions, both are relevant in 2026 — with stricter requirements. If you switch now to automated, ongoing processes, you will be well positioned.

Book a demo and map the Fit-and-Proper workflow in a BaFin-compliant way.

Further Reading — Related Articles

• BaFin Fit-and-Proper 2026

• Fit & Proper Review: BaFin Requirements

• DORA Art. 28 Third-Party Providers

• Sanctions List Screening for Companies

• EU, UN, OFAC Sanctions Lists