Competence & Ethics
The FSA has released policy statement PS10/18 (‘Competence and ethics’) which was a follow up to the similarly named consultation paper CP10/12 – see Regulatory Roundup 16 for further details.
The ‘Competence’ element of the paper concentrates around changes to the Training and Competence (‘TC’) module of the handbook. Although normally associated with activities relating to retail clients, SYSC 5.1.4A suggests that firms whose activities are not subject to TC may nevertheless wish to take TC into account when complying with the competence requirements in SYSC.
Changes to TC include dividing ‘advising and dealing’ into two activities (securities and derivatives) and the introduction of a 30 month time window in which to attain an appropriate qualification (however the 30-month time limit does not extend to those carrying out overseeing activities). Section 2.5 of PS10/18 advises that the 30-month time limit starts when the trainee commences the relevant activity under supervision and not when they start a training programme.TC 2.2A provides further details.
It is important to bear in mind that the 30 month rule relates to the time an individual must attain an appropriate qualification; it does not relate to the assessment of competency. Although qualifications are a part of assessing competency, so are skills and experience. It will be up to firms to decide on their own time frames for assessing competency.
One important difference between CP10/12 and PS10/18 is that the final rules do not amend the transitional provisions. It was originally proposed that the exemption available under TC TP 1.1 would cease to apply 30 months after the new rules came into place (1 January 2011).This transitional provision meant that those employees deemed as competent before ‘commencement’ (effectively when the FSA came into being – 1 December 2001) were not required to pass any exams. There was also a similar proposal in respect of TC TP 2.1. Apart from minor tweaking the transitional are now retained. Those taking advantage of the provisions do need to bear in mind the requirement that the role needs to be “the same or substantially the same” – please refer to the transitional provisions for the exact wording.
As to the appropriate qualification, reference should be made to TC Appendix 4E, including the all-important key at the beginning of this Appendix. By way of example, for ‘managing investments’ we see that the IMC is an ‘appropriate qualification’ or, say, CFA Level 1 plus SII (now known as the CISI) ‘Financial Regulation’. Obviously it will be up to individual firms to determine which precise combinations will be ‘appropriate’. With regard to the IMC, it is important to note that whilst pre and post 2010 examination standards are acceptable for the activity of ‘managing investments’, the same is not true for the activity of, say, ‘advising on securities’. As a consequence of the RDR, for the qualification to meet requirements post 31 December 2012, only the Level 4 certificate is acceptable – and even then the Level 4 IMC has to be combined with other specialist qualifications. In addition to the reference to this in Regulatory Roundup 16, further information can be found using the IMC link in Regulatory Roundup 11.
Under the ‘Ethics’ element of the paper, changes to APER (APER, of course, applies to all approved persons regardless of the firm’s client base) will be implemented, the most important of which will be APER 4.5.13A. This provides that an approved person performing a significant influence function(being all the controlled functions bar the CF30 customer function) should take steps to satisfy themselves that each area of the business they are responsible for has in place appropriate procedures to review the competence, skills and performance of each individual member of staff.
The FSA has commented (see section 4 of PS10/18) on the relatively poor knowledge of APER among approved persons and that it expects such individuals to understand their obligations under APER and the consequences if they fail to adhere to them. Firms’ Compliance Officers, or those responsible for training, may wish to give consideration to including APER as a training topic in 2011; the link will take you to the relevant part of the handbook.
All the changes came into force 1 January 2011; the final handbook text, which is now incorporated in TC, can be found in Appendix 1 of PS10/18.