SIFA 10.1 Training and Competence

Training and competence is covered in the Training and Competence sourcebook (TC). The sourcebook defines the standards firms should achieve but does not prescribe in detail what a firm's training and competence (T&C) arrangements should be. It expects a firm to use this flexibility to design a T&C scheme that meets its needs effectively and efficiently. This means that firms should take a risk-based approach to T&C so that they spend time and resource on the areas that need it rather than applying a standard approach in every circumstance.

The TC sourcebook contains:

1. (1)

   Transitional Provisions (TP);

2. (2)

   Commitments (TC Chapter 1);

3. (3)

   Rules and Guidance (TC Chapter 2); and

4. (4)

   Interim approved examinations (Annexes).

Chapter 2 contains sections on recruitment, training, attaining competence, approved exams, maintaining competence, supervising and record keeping. The TC2 rules apply to employees of a firm engaging in or overseeing the activities in TC 2.1.4 R. The activity of 'advising without dealing' is likely to be the one most relevant to IFA firms, though you should check whether other activities may also be relevant.

The Commitments amplify Principle 3 in relation to training and competence. They apply to everyone within a firm associated with a regulated activity including senior management who may not fall within the scope of the TC2 rules.

The firm's commitments to training and competence should be that:

1. (1)

   its employees are competent;

2. (2)

   its employees remain competent for the work they do;

3. (3)

   its employees are appropriately supervised;

4. (4)

   its employees' competence is regularly reviewed; and

5. (5)

   the level of competence is appropriate to the nature of the business.

Employee is a generic term that covers everyone who works in a firm.

Being competent means being able to show the relevant individual has the necessary knowledge, skills and experience to do the job and doing it to the required standard effectively and consistently.

Competence is made up of:

1. (1)

   application of knowledge and skills; and

2. (2)

   appropriate approved examination passes.

Knowledge and skills must be assessed, measured and improved where necessary.

The activity in the Training and Competence sourcebook most likely to be carried out by an IFA is TC 2.1.4 R1(f) which covers employees engaging in advising on investments, which are packaged products (other than broker funds). The approved exams for this activity are in Annex 3R, Table 1, which can be accessed through the following link:www.fsa.gov.uk/vhb/html/TC/TC2Annex3.html. It is up to regulated firms to decide which is the most appropriate approved examination.

We are consulting on moving from approved examinations to appropriate examinations, which will be maintained by the Skills Council for Financial Services. If the proposals are accepted, we intend to implement them in 2004. The proposals are in CP194, available at 'http://www.fsa.gov.uk/pubs/cp/cp194.pdf.'

In applying the T&C Rules you should consider:

1. (1)

   Who do the rules apply to? ( TC 2.1)

2. (2)

   What is the existing level of knowledge and skills of the individual? ( TC 2.2, TC 2.3)

3. (3)

   What knowledge and skills are required to carry out the role to an adequate standard? ( TC 2.4)

4. (4)

   What action such as training is required to fill the gaps? ( TC 2.3)

5. (5)

   How is it known whether the training has worked? ( TC 2.3)

6. (6)

   How to measure the level of knowledge and skills already achieved and compare this with the level required? ( TC 2.4)

7. (7)

   Once achieved, how is competence to be maintained? ( TC 2.6)

8. (8)

   What arrangements need to be in place to ensure that employees are appropriately supervised? ( TC 2.7)

Firms should have a training plan in place for each employee carrying out an activity listed in TC 2.1.4 R. This plan should cover the testing and measurement of skills and knowledge.

When a new employee joins the firm you should think about the knowledge and skills of that individual and how they match up to the role they will perform. Your firm must also take reasonable steps to gather enough information about their previous activities, training and qualifications ( TC 2.2).

Your firm needs arrangements in place to ensure an employee remains competent. These might include tests, role-plays, performance indicators or file checks. It is up to the firm to determine the most suitable methods ( TC 2.6).

Employees must be appropriately supervised both before and after they have attained competence. The level of supervision will vary depending on the competence of the employee and is likely to be less intense once competence has been attained (TC 2.7). In the case of an employee advising private customers on packaged products, the individual supervising that employee must have passed an appropriate approved examination and have the required knowledge and skills before acting as supervisor ( TC 2.7.5 R). A sole practitioner is permitted to supervise himself.

A firm must keep records to demonstrate compliance with the rules (TC 2.8.1 R). The records kept should enable the firm to demonstrate the information in the table below:

TC Schedule 1 gives an overall view of the record keeping requirements. Your firm must retain records for at least three years after the end of an individual's employment. The records of pension transfer specialists must be kept indefinitely.

These may be found at TC Transitional Provisions (TP). TP1 covers staff assessed as competent before N2 under the rules of previous regulators. TP1 enables a firm to assess such an employee as competent after N2 to carry on the same or substantially the same activities without making an assessment of competence or requiring the employee to pass an examination. When such a person is recruited, your firm should gather evidence that TP1 applies. The new employer also needs to assess the person as competent. This will be on the same basis as applied at N2, provided he carries on the same, or substantially the same activity and provided there has not been a significant break in employment since last assessed as competent. It is up to the firm to decide what constitutes a significant break.

TP4 allowed advisers at N2 the remainder of the three-year time limit that they had to pass approved examinations under the PIA Rules. The three-year time limit is not transferable. If the employee moves to a new firm then he has until 30 November 2003 to pass the examinations (TC Annex 3R Table 1).

Several industry bodies have worked to develop best practice appropriate to their sector of the industry. The main IFA trade associations have been involved in the Financial Services National Training Organisation's Toolkit for IFAs.

Our Industry Training department runs T&C workshops. Since 5 September 2003 a T&C compact disc has also been available (to order download and complete the flyer at http://www.fsa.gov.uk/industry-training/tc_distance_flyer.pdf, or phone the industry training booking line on 020 7066 0752). Our T&C Helpline (020 7066 0770/0766) also provides help for firms.

CP 194, Amendments to the Training and Competence sourcebook proposes:

1. (1)

   revising the requirement to pass an FSA 'approved' examination to one that is appropriate;

2. (2)

   removing the list of 'approved' exams from our Handbook; and

3. (3)

   that firms will select the appropriate examination from the examinations list to be maintained by the Skills Council for Financial Services.