Training and competence is an important part of the FSA's regulatory framework. The training and competence sourcebook's combination of rules and guidance is designed to ensure appropriate standards of competence, knowledge and skills to maintain confidence in the UK financial markets and provide appropriate protection for consumers.
For the broker, training and competence is not a one-time chore but an ongoing commitment to remain competent and keep abreast of new product features and changes to the regulatory requirements. This week's article looks at the specific issue of a mortgage examination.
CP194 was published in August and proposes that the FSA moves to an assessment of competence by reference to examinations which are 'appropriate' rather than by reference to a published list of 'approved' examinations.
It is important that brokers have their say by the response deadline of November 30. The FSA poses five questions (see box).
Question one concerns the change in rules that would mean the FSA would no longer have to maintain a list of approved examinations. It is effectively outsourcing the whole of the examinations syllabus to the Skills Council for Financial Services.
The SCFS is an independent body that will be licensed in 2004 by the secretary of state for education and skills.
The FSA says: “These proposals will not remove the need to demonstrate competence. In fact, clearly placing the responsibility on the firm to select an appropriate examination fits into our approach that firms should take responsibility for compliance with our rules and are best placed to decide how to meet our requirements”.
Firms will continue to be responsible for ensuring the examination is appropriate when assessing the competence of their employees.
This seems a sensible approach since exams will be agreed by a specialist expert body, the SCFS, and it gives firms more latitude to decide on what they regard as the most appropriate examinations for their advisers. But as the saying goes, give someone enough rope and they will hang themselves. For smaller firms, particularly sole traders, this is not a mandate to make your own decision to avoid exams.
The FSA will demand that you are competent to provide advice not only by passing exams in the first place but also by having the appropriate arrangements to ensure that you maintain your competence. If you are deemed not to be competent you will be closed down.
Question two refers to a rule change that obliges the regulated firm to refer to the exams list published by the SCFS. It provides a statutory link in addition to a memorandum of understanding between the FSA and the SCFS.
Question three proposes that records should be kept for a minimum of three years except for pension transfers which must be kept indefinitely. The current rules inadvertently require firms to keep records indefinitely if the employee/adviser concerned with the case remains with the firm, albeit in a different role. The main reason for keeping records is to show the suitability of the transaction and this change simply corrects a fault in the rules as originally drafted. The FSA recognises that many firms voluntarily keep records for longer than the minimum required period.
Question four relates to the sole trader who would be responsible for his own compliance within the training and competence rules i.e. there is nobody else in the firm able to apply the supervision requirements. Note that this is not the same thing as the current MCCB supervisory requirements for unqualified advisers. The FSA proposes additional guidance for a person in this position, namely that the person should make “appropriate arrangements”. But there is no indication of what the sole trader is actually supposed to do. The obvious response would be to ask for guidance on what appropriate arrangements are and ask for some examples.
Question five asks for input on an examination that will be required for advised mortgage sales and advised and non-advised sales of lifetime mortgages. The FSA does intend to grandfather advisers who have already met the MCCB fitness and competence requirements i.e. passed CeMAP or equivalent. The transitional provisions were detailed in CP186, volume two.
Annex D of the consultation paper considers the possible content of the exams that are likely to come into force in 2005 or later. Feedback will be passed to the SCFS which will have the responsibility of securing an appropriate examination as part of its examination review.
The 'learning outcomes and indicative content' expression used in question five seems a clumsy way of describing the objective and proposed content of the examination. The objective is that the advisers should be able to understand the concepts, principles and legislation supporting the provision of advice on mortgages.
There are 23 sections in the list of 'learning outcomes' starting with 'Understand what a mortgage is and know the definition of a regulated mortgage contract'.
The indicative content then goes into more detail regarding what you need to know for each section. There is a separate module for lifetime mortgages which has 11 sections. Overall, the sections are relatively few in number and do relate directly to the regulated activity of mortgage sales. This is in contrast to CeMAP where many advisers felt part of the content to be remote from their day-to-day activities and left them with the impression that they needed to be mortgage expert, solicitor and marriage guidance counsellor rolled into one.
Let's hope that when the proposed content of an insurance examination is drafted by the FSA or the SCFS, it will be equally concise and relevant to the matter of insurance sales.
Let the FSA know what you think
CP194: five questions, response deadline of November 30
Do you agree with the proposal to move from FSA 'approved' examinations to 'appropriate' examinations?
Do you agree with the proposal to refer to the examinations list maintained by the SCFS?
Do you agree with the proposal to amend the record keeping requirements in TC2.8.1R (2)?
Do you agree with the proposal to provide additional guidance on the supervision requirements in TC2.7 of the training and competence sourcebook?
Do you agree that the learning outcomes and indicative content proposed in Annex D are appropriate for the activity of advising on mortgages and non-advised sales of lifetime mortgages?
A response template can be downloaded from www.mortgagestrategy.co.uk