Are you sufficiently competent to do your job? Are your colleagues and indeed, is your boss? Regardless of your experience in the financial services industry or your years as a mortgage adviser, the FSA regime brings with it the obligation to prove this.
Many advisers at last month's Mortgage Business Expo mentioned training and competence as a grey area of the new regime. It shouldn't be. While regulation has been designed to stamp out instability and market or point-of-sale abuses, back-office changes have also been built into the rules.
The regulator decided on this to provide for ongoing professional improvement in our industry and, though the T&C rules go further than anything experienced under the Mortgage Code, they are manageable. Some firms may even find the measures increase professionalism within their organisations but let's not get carried away here.
Let's start with the basics – qualifications. Since 2003 it has been compulsory to hold either the Certificate of Mortgage Advice and Practice (CeMAP – or MAPC in Scotland) or Mortgage Advice Qualification (MAQ) to advise on mortgages. Over 60,000 individuals now hold one of the qualifications and, though the FSA will recognise these exams and 'grandfather' qualified advisers into its own regime, firms must understand rules on those yet to qualify.
Non-qualified advisers and trainees face a two-year deadline to pass the exams from the date when they started in the adviser role. Firms should keep a record of a trainee's start date for the firm's T&C statement as well as recording this in the individual's T&C file with other information such as job description, functions performed, statement confirming suitability, CV, relevant training and further development plans, among other things. If they are to be involved in the advice process, those yet to jump this first hurdle must also be supervised at all times.
Beyond advisers, senior managers must ensure all employees connected with regulated activities are competent and document this in a consistent manner. Senior managers will have to vouch for their own suitability for their posts and how responsibility is shared, as well as detailing the division of responsibility with other senior managers or directors. A statement recording how responsibilities and functions are divided between approved persons, or responsibility for the 'controlled functions' as described by the FSA in its handbook, will be a standard way of documenting this.
If, during your preparations for authorisation, you face the unenviable task of having to ask your boss why he is competent to carry out a function, just remember that this is a vitally important part of the FSA regime. As an obligation under the ཇ Principles for Business', it is not something to pay lip service to.
Principle 3 commits firms to organising their businesses responsibly and effectively. This means ensuring that staff: are competent; remain competent for the work they do; are appropriately supervised; are regularly reviewed to ensure that they remain competent; and have an appropriate level of competence for the work they do.
For more detail on the FSA T&C regime, members should see AMI Factsheet 10 at www.a-m-i.org.uk.
Q: I have heard inconsistent reports as to which part of the FSA regime covers suitability. Is there a simple definition I have overlooked?
A: Suitability forms Principle 9 of the ཇ Principles for Business' (PRIN). This commits firms to ensuring the suitability of advice given but the real substance is laid out in MCOB section 4.7.2R. Intermediaries might not make a recommendation unless the mortgage being recommended is suitable for the customer after a fact-find and discovering any other relevant facts about the customer. If this is this case, the FSA considers a mortgage suitable provided:
The customer can afford to enter into it
It is appropriate to the customer's needs and circumstances
It is the most suitable of those the intermediary has available within the scope of the service provided.
Intermediaries must not make a recommendation if the mortgages available to them are not suitable for the customer.