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

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

Fit-and-Proper: The Concept

"Fit and Proper" is a well-established Europe-wide concept: people in key functions at financial institutions must be professionally qualified (fit) and personally reliable (proper).

“Fit” — professional suitability

• Professional qualifications (degree, relevant work experience)

• Professional competence for the specific role

• Experience in comparable positions

• Evidence of continuing professional development

“Proper” — personal reliability

• No relevant convictions

• No history of insolvency

• No conflicts of interest

• No issues on sanctions lists or with 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 specific 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 areas of white-collar crime, property crimes, money laundering)

• No pending criminal proceedings

• No insolvency proceedings in the last 10 years

• No supervisory or professional disciplinary proceedings

Reliability screening: The broader term

"Reliability screening" is a broader term than Fit-and-Proper. It refers to checking a person's integrity in the broadest sense — regardless of whether the role is regulated or not.

Reliability screening 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 the context):

• § 25c KWG (financial sector)

• § 7 GwG (money laundering officers)

• § 24 VAG (insurance companies)

• § 72a SGB VIII (educational professions)

• SÜG (security-sensitive positions)

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

What is the difference?

Who must pass a Fit-and-Proper assessment?

Under § 25c KWG and analogous regulations:

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

• Supervisory board members of banks

• Members of the management body of insurance companies (VAG)

• Executives in asset management companies (KAGB)

• Managing directors of payment service 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 to § 25c KWG is the FINMA fit-and-proper assessment. Legal basis: Art. 3 BankG (banks), Art. 11 FinIA (financial institutions), Art. 14 VAG (insurers). The board, board of directors, and management are assessed for a "guarantee of proper business conduct." A rejected fit-and-proper assessment can lead to the refusal or withdrawal of the license. The process is less formalized than with BaFin, but similar 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 the EBA guidelines. A special feature in Austria: every time there is a change at the FMA — not just on initial appointment — the assessment is repeated.

EU-wide — EBA-ESMA + CRD VI

With the EBA-ESMA Joint Guidelines on Suitability 2024 and CRD VI, uniform standards are being established across the EU. New from 2026: CFOs and heads of control functions will fall under Fit-and-Proper across the EU — not just managing directors and supervisory board members. For cross-border institutions, this means a consistent assessment framework must be documented coherently across the EU.

From January 2026: Stricter requirements

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

1. Expanded group of people: No longer just managing directors, but also compliance officers and key second-line roles

2. Ongoing assessment: A one-time review at appointment is not enough. Continuous monitoring (sanctions, PEP, adverse media) is mandatory

3. Personal liability: Managing directors are personally liable for inadequate reviews — 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 "only" relevant for reliability screening?

2. Define the depth of review per role

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

• Compliance officers: reliability screening under the BaFin guidance notice

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

• Other employees: standard pre-employment check

3. Automate the process

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

4. Ongoing monitoring

At least monthly: sanctions list matching, PEP status, adverse media. Escalate immediately to Compliance if anything is flagged.

5. Documentation fit for a BaFin review

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

Indicium for Fit-and-Proper workflows

Indicium covers all review areas under § 25c KWG and general reliability screening:

• Identity, qualifications, references

• Criminal record, 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 screening overlap, but they are legally and operationally different. For financial institutions, both are relevant in 2026 — with stricter requirements. If you switch to automated, ongoing processes now, you will be well positioned.

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