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Up to the mark

The FSA is clamping down on firms which fail on training and compliance and sending a clear message that T&C breaches will not be tolerated and businesses must ensure that their schemes hit their targets

As advisory firms transition their businesses to deliver engaging service-based client propositions, practice principals must ensure that their internal training & competence schemes are also enhanced to reflect the new way of working.

In many cases, investment platforms are considered enablers of such change. But while the FSA likens them to traditional products, Bankhall is increasingly seeing examples of directly regulated firms that are unable to demonstrate alignment of traditional supervision regimes with the tools increasingly relied upon to deliver an ongoing service provision.

This comes at a time when the regulator shows no sign of slowing down with its credible deterrence approach to enforcement and will not hesitate to impose fines where failures are identified. The FSA believes that imposing such financial penalties will deter firms from committing further breaches and will send a clear message to the industry as a whole as to the consequences of failures in compliance.

This means it is vitally important for adviser firms to have an appropriate compliance framework in place and to ensure it has been embedded within their business.
Things to consider when developing a T&C programme include the need to ensure that there is appropriate and relevant information contained within it. Firms should demonstrate how they will ensure that not only advisers but also the management and directors of the business have the appropriate skills, knowledge and experience to be able to meet the requirements and responsibilities as detailed within their job descriptions.

Firms must also show how they will ensure that knowledge will be kept up to date and skills developed. It is not just a question of recruiting the individuals who look like they have the right skills, there is also a responsibility to test skills, knowledge and experience through the firm’s recruitment process.

Once a firm has recruited the individual, they must regularly monitor their competence to ensure that they develop in line with regulatory requirements and the needs of the business. We have seen examples where firms have been taken through to enforcement because they have failed to ensure that all individuals in the company are included within their T&C scheme. Due to a lack of monitoring, the firm has been unable to demonstrate how the individuals have remained competent to perform their role.

Where a firm’s T&C scheme details that they will undertake monthly one-to-ones with the competent advisers as well as completing a certain amount of file reviews, it is imperative that the firm undertakes these monitoring activities as set out in the scheme and maintains evidence to substantiate these actions.
However, firms should not forget that T&C extends beyond the monitoring and supervision of advisers and encompasses those individuals who may not be customer facing but who have management and supervisory roles within the company.

Aspects of the T&C requirements are set out in FSA rules and guidance. However, firms should ensure that the T&C scheme reflects the scale and nature of the business. This will enable the firm to demonstrate the appropriateness and relevance of the scheme.

An area of business that many firms are focusing on at the moment is the use of platforms. Firms must ensure that the T&C scheme pays due regard to supervising the use of platforms by advisers and other client-facing and admin staff within the company.

When recommending the use of platforms to clients, advisers must be aware of the potential impact on “independence” and on “client best interest rules”, for example, in respect of the method of payment. Each client file must justify suitability on an individual basis. The T&C scheme and file checks must reflect this but should also go further and look at how the adviser has strived to develop client understanding of how platforms operate and how they meet the client’s needs.

When monitoring and assessing individuals, the firm must identify and assess how performance meets with the firm’s criteria, as set out in the scheme. The outcome should be discussed and recorded appropriately.

The scheme should be flexible enough to ensure that where corrective action is required, whether this is across the firm as a whole, on an individual basis or even where withdrawal of authorisation must be considered, that the scheme can support this.

Recently, when we have been assisting firms which are applying for FSA authorisation or varying their permissions, the regulator has been asking more intrusive questions regarding how firms are managing competency of individuals now and in the lead-up to the RDR.

These questions relate to competency around different product areas and the associated risks aligned to products. They also include questions regarding current competency of individuals and directors and the progress that is being made towards meeting RDR requirements.

The regulator wants to know what the supervision of individuals will look like and what progress the firm as a whole is making.

Nick Kelly, Managing director, Bankhall



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