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TC 2.1 Application: who? where? and what?

Who?

TC 2.1.1 R RP
  1. (1)

    This chapter applies, subject to (2), to every firm to the extent indicated in TC 2.1.4 G, except that:

    1. (a)

      for an incoming EEA firm or an incoming Treaty firm, this chapter applies only in so far as responsibility for any matter it covers is not reserved by a European Community instrument to the firm's Home State regulator; and

    2. (b)

      this chapter applies to a UCITS qualifier only in so far as it is relevant to the manner in which a firm communicates or approves a financial promotion.

  2. (2)

    This chapter does not apply to an authorised professional firm with respect to its non-mainstreamregulated activities, see PROF 5.2.

Where?

TC 2.1.2 R RP
  1. (1)

    In relation to designated investment business:2

    1. (a)

      unless (aa) applies, 5this chapter applies to a UK domestic firm in respect of its employees who engage in or oversee activities (to the extent indicated in TC 2.1.4 G):2

      1. (i)

        from an establishment maintained by the firm (or its appointed representative) in the United Kingdom; and2

      2. (ii)

        with or for a client in the United Kingdom.2

    2. (aa)

      5if the designated investment business constitutes insurance mediation activity, this chapter applies to a UK domestic firm in respect of its employees who engage in or oversee activities (to the extent indicated in TC 2.1.4 G):

      1. (i)

        from an establishment maintained by the firm (or its appointed representative) in the United Kingdom; or

      2. (ii)

        from a branch established in another EEA State;

    3. (b)

      unless (bb) applies, this 5chapter applies to an overseas firm in respect of its employees who engage in or oversee activities (to the extent indicated in TC 2.1.4 G) from an establishment maintained by the firm (or its appointed representative) in the United Kingdom.125

      5
    4. (bb)

      5if the designated investment business constitutes insurance mediation activity, this chapter does not apply to an overseas firm which is an EEA firm.

  2. (2)

    In relation to regulated mortgage activities2 carried on with for a customer, this chapter applies if the customer is resident in:2

    1. (a)

      the United Kingdom; or2

    2. (b)

      another EEA State, but in this case only if the activity is carried on from an establishment maintained by the firm or its appointed representative in the United Kingdom only;2

    at the time that the 2regulated mortgage activity is carried on.2

  3. (3)

    5In relation to insurance mediation activities in respect of non-investment insurance contracts carried on with or for a customer, this chapter applies to any such activity carried on by a UK domestic firm:

    1. (a)

      from an establishment maintained by the firm (or its appointed representative) in the United Kingdom; or

    2. (b)

      from a branch established in another EEA State.

TC 2.1.2A G

ECO 1.1.6 R has the effect that this chapter does not apply to an incoming ECA provider acting as such.

What?

TC 2.1.3 G RP

The table in TC 2.1.4 G sets out the activities to which TC 2 applies.

TC 2.1.4 G RP

Activities to which TC 2 applies.

4326267

Activity

Extent of Application

1. Employees engaging in:

Advising and dealing

(a) advising on investments which are, and dealing with or for clients in, securities (other than stakeholder pension schemes or broker funds) and derivatives;

(b) advising on investments which are, and dealing with or for clients in, securities (other than stakeholder pension schemes or broker funds) only;

(c) advising on investments which are, and dealing with or for clients in, derivatives only;

Managing

(d) managing investment;

(e) managing investments in relation to venture capital investments only;

Advising (without dealing)

(f) advising on investments which are packaged products (other than broker fund or as in (g), (h) or (ha));4

(g) advising on investments which are friendly society tax exempt policies only;

(h) advising on investments which are packaged products (where the employee sells only life policies issued by a friendly society and is not reasonably expected to receive remuneration of more than £1,000 a year in respect of such sales);

(ha) advising on investments which are long-term care insurance contracts;4

(i) advising on investments in the course of corporate finance business only;

(j) advising on investments which are (but not dealing in) securities (other than stakeholder pension schemes or broker funds) and derivatives;

(k) advising on investments which are (but not dealing in) securities (other than stakeholder pension schemes or broker funds) only;

(l) advising on investments which are (but not dealing in) derivatives only;

(m) the activity of a broker fund adviser;

(n) advising on syndicate participation at Lloyd's;

(o) the activity of a pension transfer specialist.

(p) advising a customer on a:3

(i) regulated mortgage contract (other than a regulated lifetime mortgage contract) or a regulated mortgage contract that is for a business purpose; and23

(ii) aregulated lifetime mortgage contract.23

Non-advised sales

(q) designing scripted questions for use in sales to customers of regulated lifetime mortgage contracts which do not involve personal recommendations2.

(r) advising on investments which are non-investment insurance contracts26

1. In relation to designated investment business:2

(a) if the activity is carried on with or for a private customer, whole of TC 2 applies;2

(b) if the activity is carried on with or for an intermediate customer or a market counterparty only TC 2.4 , TC 2.5, TC 2.6, and TC 2.8 apply.2

2. In relation to regulated mortgage activities2, whole of TC 2 applies.2

3. In relation to advising on investments which are non-investment insurance contracts if the activity is carried on with or for a retail customer (see ICOB), the whole of TC 2 applies, except for TC 2.5, as if in TC 2.2, TC 2.3, TC 2.4 and TC 2.7 each reference to private customer were a reference to retail customer.6

2

2. Employees overseeing on a day-to-day basis:

(a) operating, or acting as a trustee or depositary of, a collective investment scheme;

(b) safeguarding and administering investments or holding of client money (unless held in the course of carrying on a mortgage mediation activity2, or an insurance mediation activity only in relation to a non-investment insurance contract6);

(c) the following administrative functions in relation to managing investments:

(i) arranging settlement;

(ii) monitoring and processing corporate actions;

(iii) client account administration, liaison and reporting, including valuation and performance measurement;

(iv) ISA, PEP or CTF administration;7

(v) investment trust savings scheme administration;

(d) the following administrative functions in relation to the effecting or carrying out of life policies:

(i) new business administration;

(ii) policy alterations, including surrenders and policy loans;

(iii) preparing projections;

(iv) processing claims, including pension payments;

(v) fund switching;

(e) taking private customers through decision trees in connection with a stakeholder pension scheme;

(f) the following administrative functions in relation to the operation of a stakeholder pension scheme:

(i) new business administration;

(ii) receipt of or alteration to contributions;

(iii) preparing projections and annual statements;

(iv) administration of transfers;

(v) handling claims, including pension payments;

(vi) fund allocation and switching.

(g) the sales to customers of 2 regulated lifetime mortgage contracts which do not involve personal recommendations . 2

Whole of TC 2 applies except TC 2.7 (Supervising).

Actions for damages

TC 2.1.5 R RP

A contravention of the rules in TC does not give rise to a right of action by a private person under section 150 of the Act (and each of those rules is specified under section 150(2) of the Act as a provision giving rise to no such right of action).

TC 2.2 Recruitment

TC 2.2.1 R

If a firm intends to recruit an individual with a view to that individual engaging in or overseeing an activity with or for private customers, the firm must as part of its recruitment procedures:

  1. (1)

    take into account the knowledge and skills of the individual in relation to the knowledge and skills required for the role; and

  2. (2)

    take reasonable steps to obtain sufficient information about the individual's previous relevant activities and training.

TC 2.2.2 G

The firm should take reasonable steps to obtain information about the knowledge and skills of the individual in TC 2.2.1 R, including any appropriate examination passes, from a suitable source within a reasonable time.1

TC 2.3 Training

TC 2.3.1 R

If a firm's employees engage in or oversee an activity with or for private customers, the firm must:

  1. (1)

    at intervals appropriate to the circumstances, determine the training needs of those employees and organise appropriate training to address these needs; and

  2. (2)

    ensure that training is timely, planned, appropriately structured and evaluated.

TC 2.3.2 G

In the case of a new employee or an employee new to an activity, the firm should determine the employee's training needs before the employee engages in or oversees any activity.

TC 2.3.3 G
  1. (1)

    Training should take into account the knowledge and skills necessary to fulfil the role.

  2. (2)

    A firm should ensure that training remains effective and up to date.

  3. (3)

    Training should take into account changes in the market and to products, legislation and regulation.

  4. (4)

    A firm should use methods of meeting training needs that are appropriate to the activity and to the employee's circumstances and role.

TC 2.4 Attaining competence

TC 2.4.1 R

A firm must not permit an employee to engage in or oversee an activity unless:

  1. (1)

    the employee has been assessed as competent in that activity in accordance with TC 2.4.5 R; or

  2. (2)

    the employee engages in or oversees the activity while under appropriate supervision; or

  3. (3)

    the employee has been assessed in accordance with TC 2.4.5 R as competent to engage in or oversee a particular activity, but then engages in or oversees in a different activity, then the employee is appropriately supervised until assessed as competent in that new activity.

TC 2.4.2 R
3
  1. (1)

    A firm which permits an employee to engage in an activity with or for a private customer under supervision must ensure that:3

    32
    1. (a)

      the employee has first passed the relevant regulatory module of an appropriate examination; and3

    2. (b)

      the firm has satisfied itself that the employee has an adequate level of knowledge and skills to act with or for private customers while under supervision.3

  2. (2)

    (1)(a) does not apply when this activity is an insurance mediation activity in relation to a non-investment insurance contract3.

    32
TC 2.4.3 G

In TC 2.4.2 R (2)an adequate level of application of knowledge and skills includes:

  1. (1)

    specific knowledge of the firm's relevant systems and procedures, and of the kinds of designated investment business14 andregulated mortgage activities carried on by the firm; and

  2. (2)

    appropriate skills in analysing private customers' needs and circumstances when applying relevant knowledge.

TC 2.4.4 R

If a firm permits an employee under supervision to engage in:

  1. (1)

    advising on investments which are, and dealing with or for clients in, securities (other than stakeholder pension schemes or broker funds), derivatives or both such securities and derivatives; or2

  2. (2)

    the activity of a broker fund adviser; or

  3. (3)

    advising on syndicate participation at Lloyd's; or

  4. (4)

    the activity of a pension transfer specialist;

the firm must ensure that the employee has first passed an appropriate examination before permitting the employee to engage in the relevant activity.2

Assessing competence

TC 2.4.5 R
3
  1. (1)

    A firm must not assess an employee as competent to engage in or oversee an activity unless the employee:3

    3
    1. (a)

      has been assessed as competent to apply the knowledge and skills necessary to engage in or oversee the activity without supervision; and3

    2. (b)

      has passed each module of an appropriate examination.3

  2. (2)

    (1)(b) does not apply when this activity is an insurance mediation activity in relation to a non-investment insurance contract3.

    32
TC 2.4.6 G

A firm should ensure that its assessments take into account:

  1. (1)

    technical knowledge and its application;

  2. (2)

    skills and their application; and

  3. (3)

    changes in the market and to products, legislation and regulation.

TC 2.4.7 G

A firm should use methods of assessment that are appropriate to the activity and to the employee's role.

TC 2.4.8 G

A firm should ensure that its employees are aware how its training and competence arrangements apply to their individual roles.

TC 2.4.9 G

A firm should, for the purposes of TC 2.8.1 R (Record keeping), make and retain records of:

  1. (1)

    the criteria applied in assessing competence; and

  2. (2)

    how and when the competence decision was arrived at.

TC 2.5 Appropriate examinations2

Time limits

TC 2.5.1 R
  1. (1)

    A firm must ensure that an employee under supervision passes an appropriate examination within the time specified in TC 2.5.1A R, and, for this purpose, a firm must record the date on which the employee began engaging in or overseeing the relevant activity.2

  2. (2)

    For the purposes of calculating the time spent by an employee under supervision, a firm must:

    1. (a)

      aggregate periods of time spent engaging in or overseeing the activity during different periods of employment; and2

    2. (b)

      disregard any period of 60 business days or more during which the employee is continuously absent from engaging in or overseeing the activity.

  3. (3)

    A firm must ensure that any employee who does not pass an appropriate examination within the specified time:2

    1. (a)

      ceases to engage in or oversee the activity; and

    2. (b)

      does not resume the activity or oversee the activity without first passing an appropriate examination.2

TC 2.5.1A R

2The time limits to which TC 2.5.1 R applies

2

Activity in TC 2.1.4 G

Examination must be passed:

1.

(a)-(c)

before starting the activity

(d)-(e)

within 30 months of starting the activity

(f)-(g)

within two years of starting the activity

(h)

(no examination requirement)

(ha)-(l)3

within two years of starting the activity

(m)-(o)

before starting the activity

(p)-(q)

within two years of starting the activity

(r)

(no examination requirement)

2.

(a)-(g)

within two years of starting the activity
TC 2.5.2 G

A firm should, for the purposes of TC 2.8.1 R (Record keeping), make and retain records of the time limits within which the appropriate examination has been passed.2

Advising and dealing: restarting the activity

TC 2.5.3 R

A firm must ensure that an employee does not recommence engaging in the activity of advising on investments which are, and dealing with or for clients in, securities (other than stakeholder pension schemes or broker funds), derivatives or both such securities and derivatives if:

  1. (1)

    the employee has not engaged in that activity for 12 months; and2

  2. (2)

    two years have elapsed since the employee passed an appropriate examination for that activity;2

unless the firm can demonstrate that the employee has sufficient experience and has kept his technical and regulatory knowledge up to date. If the firm cannot do so it must require the employee to pass an appropriate examination.2

TC 2.5.4 G

A firm may regard an employee described in TC 2.5.3 R as having sufficient experience if the firm has determined that the individual has had at least three years' relevant experience in the past five years.

Exemption from the approved examination

TC 2.5.5 R
  1. (1)

    Except as described in (2) and (3), if a firm is satisfied that an employee:

    1. (a)

      has at least three years' up-to-date relevant experience in the activity in question obtained while employed outside the United Kingdom;

    2. (b)

      had not previously been required to comply fully with the relevant examination requirements as stipulated in TC 2.4.5 R (1)(b)2; and

      2
    3. (c)

      has passed the relevant regulatory module of an appropriate examination;2

    then the requirement to have passed each module of an appropriate examination in 2TC 2.4.5 R (1)(b)2 does not apply for that employee.

    2
  2. (2)

    Paragraph 1 does not apply for an employee engaging in the following activities:

    1. (a)

      advising on investments which are packaged products, if that advice is given to private customers;

    2. (b)

      the activity of a broker fund adviser;

    3. (c)

      advising on syndicate participation at Lloyd's;

    4. (d)

      the activity of a pension transfer specialist.

  3. (3)

    Paragraphs (1)(b) and (c) do not apply for an employee who would perform:

    1. (a)

      the investment adviser function; or

    2. (b)

      the corporate finance adviser function; or

    3. (c)

      the investment management function;

    but for the 30-day rule, unless the individual is advising private customers on packaged products or is a broker fund adviser.

  4. (4)

    In (3), the '30-day rule' means the provisions of:

    1. (a)

      SUP 10.10.7 R (3); or

    2. (b)

      SUP 10.10.13 R (2); or

    3. (c)

      SUP 10.10.20 R (2);

    as appropriate.1

TC 2.5.5A R

3If a long-term care insurance contract provides that:

  1. (1)

    long-term care benefits are available after commencement of the policy at the option of the policyholder; and

  2. (2)

    as a result of the exercise of that option a new contract of insurance is offered to the policyholder;

an employee engaged in the activities referred to at TC 2.1.4 G 1(ha) need not, in respect of the contract containing the option, be required to pass an appropriate examination for long-term insurance contracts.

TC 2.5.5B G

3 TC 2.5.5A R applies to the situation where a contract contains an option for the policyholder to take out a second, separate contract and that second contract provides for long term care benefits. Both contracts will be long-term care insurance contracts and subject to the rules applying to such contracts. However, TC 2.5.5A R provides that, where the two contracts are separate, an employee engaged in advising on the first contract (containing the option) need not be required to pass an appropriate exam for long-term care insurance. An employee advising on the second contract, which provides the long-term care benefits, must, however, have passed an appropriate exam for long-term care insurance.

TC 2.5.6 G

A firm should, for the purposes of TC 2.8.1 R (Record keeping), make and retain records of the criteria governing its decision to apply3

  1. (1)

    3TC 2.5.5 R; or

  2. (2)

    3TC 2.5.5A R;

to an employee.3

TC 2.5.7 G

2[deleted]

Appropriate examinations2

TC 2.5.8 E
  1. (1)

    2This rule applies for the purposes of TC 2.4.2 R, TC 2.4.4 R, TC 2.4.5 R, TC 2.5.1 R, TC 2.5.3 R, TC 2.5.5 R and TC 2.7.5 R.

  2. (2)

    In ensuring that an examination is appropriate, a firm should select an appropriate examination from the list of examinations maintained by The Financial Services Skills Council as amended from time to time.

  3. (3)

    Compliance with (2) may be relied on as tending to establish compliance with the rules referred to in (1).

TC 2.6 Maintaining competence

TC 2.6.1 R

A firm must have appropriate arrangements in place to ensure that an employee who has been assessed as competent to engage in or oversee an activity maintains competence.

TC 2.6.2 G

A firm should ensure that maintaining competence for an employee takes into account:

  1. (1)

    technical knowledge and its application;

  2. (2)

    skills - their application and development; and

  3. (3)

    changes in the market and to products, legislation and regulation.

TC 2.6.3 G

A firm should maintain systems for monitoring an employee's competence.

TC 2.6.4 G

A firm should, for the purposes of TC 2.8.1 R (Record keeping), make and retain records of:

  1. (1)

    the criteria applied in assessing continuing competence; and

  2. (2)

    how the employee continues to be competent.

TC 2.7 Supervising and monitoring2

Supervising employees not assessed as competent2

TC 2.7.1 R

If a firm's employees engage in an activity with or for private customers, the firm must ensure that if an employee is not assessed as competent, but is permitted in accordance with TC 2.4.2 R to engage in a particular activity under supervision, the employee is appropriately supervised until assessed as competent in that activity.2

TC 2.7.2 G
  1. (1)

    A firm should have arrangements in place to ensure that levels of supervision are appropriate in relation to an employee's ability to apply the necessary knowledge and skills.

  2. (2)

    A firm should ensure that an employee who is being supervised undergoes, as appropriate:

    1. (a)

      review and assessment of work;

    2. (b)

      individual coaching and assessment of performance, for example, role-play and accompanied private customer visits.

TC 2.7.3 R

2[Deleted]

TC 2.7.4 G

1 2[Deleted]

Supervisors of employees advising private customers on packaged products

TC 2.7.5 R

If an employee who is not assessed as competent is engaging in the activity of giving advice on investments which are packaged products2to private customers, the firm must ensure that the individual supervising that employee:

  1. (1)

    has passed an appropriate examination; and1

  2. (2)

    has the technical knowledge, assessment skills and coaching skills to act as supervisor, before acting as supervisor, and that this competence is maintained.

2Monitoring employees assessed as competent

TC 2.7.5A R

2A firm must have arrangements in place to ensure that an employee who is engaging in an activity with or for private customers and who has been assessed as competent is appropriately monitored.

TC 2.7.5B G

2What level of monitoring is appropriate will depend on all the circumstances including the knowledge and skills of the employee. It is likely to be less intense than the level of supervision carried out under TC 2.7.1 R. If the employee is, for example, a sole trader, or the only director or partner engaging in the activity, the firm should make whatever arrangements are appropriate in the circumstances, bearing in mind that it can become difficult to be objective about one's own performance.

TC 2.7.5C R

2If an employee who is engaging in an activity with or for private customers falls below the standard expected of a competent employee, the firm must make arrangements for supervising the employee, having regard to the provisions of TC 2.7.1 R and TC 2.7.5 R.

Supervising and monitoring: record keeping2

TC 2.7.6 G

A firm should, for the purposes of TC 2.8.1 R (Record keeping), make and retain records of:

  1. (1)

    the criteria applied in deciding the level of supervision and monitoring required in respect of its employees; and2

  2. (2)

    how the supervision and monitoring of its employees is carried out.2

TC 2.8 Record keeping

TC 2.8.1 R
  1. (1)

    A firm must make appropriate records to demonstrate compliance with the rules in this chapter.

  2. (2)

    The records in (1) must be retained by the firm for at least three years after an employee ceases to engage in or oversee an activity, except for the records of pension transfer specialists, which must be retained indefinitely.1