FSSC response to CP05/10

Download pdf version

The Financial Services Skills Council (FSSC) welcomes the opportunity to respond to this consultation paper. 

The FSSC provides strategic leadership for education, training and skills development for the financial services industry across the UK. The FSSC is currently leading the review of examinations initiated by the Financial Services Authority described in CP194 and the MOU in existence. However, as an employer-led organisation, the role of the FSSC is to promote the concept of investing in training to meet the strategic needs of businesses rather than to dictate specific routes to competence.

The FSSC is the only industry body representing the entire financial services industry. It currently has more than 150 employer members, as well as membership from professional bodies which join as affiliate members. Its board, committees and forums are employer-driven and representative of a wide range of financial services functions across the UK.  

The FSSC welcomes the increased emphasis from the FSA on principles–based regulation. The FSSC understands the need to reduce the size of the FSA handbook. Whilst the FSSC recognises that it is logical for senior management of firms to be responsible for ensuring the competence of their employees, it notes the potential for confusion and uncertainty amongst employers as the regulatory environment changes within the UK and across Europe.

In preparing this response, the FSSC has restricted its comments to those areas which it considers within its remit and expertise and has not addressed other areas.

Chapter 1: Overview

Q1: Do you have any suggestions for areas of the Handbook that should be reviewed, or opportunities that you think could be taken to achieve the review’s objectives?

No

Q2: Do you agree with the principles we have set out for our review?

Yes, we welcome the increased moves towards principles and high-level standards rather than detailed rules but believe that it is important to retain guidance and provide support for firms who may feel uncertainty with the change in emphasis.  We are aware of the potential for confusion and uncertainty as European Directives are implemented and would suggest FSA considers the handbook review in the light of these timetables to avoid the cost and inconvenience of several significant changes over a short period of time. 

Whilst we recognise the practicalities of not making significant changes to areas of the handbook which have been recently reviewed or introduced, we do believe that if areas of the handbook are not meeting their objectives, the FSA should not be afraid to take steps to remedy this.

Chapter 2: Reviewing our Money Laundering regime

Q3: Do you agree with our proposals for changing our money laundering regime?

Yes, but it is important to explain clearly to firms, consumers and overseas bodies the reasons for doing so. 

The Skills Council has developed standards of competence for those engaged in Anti Money Laundering functions and believes that these will support and promote best practice within these areas. Following consultation, these standards will be available to firms shortly and we would welcome further opportunities to share these with FSA. These standards will complement the JMLSG guidance. 

Q4: Do you agree that these changes may benefit firms and would not create additional material ongoing costs? Do you have any information on the likely costs and benefits involved?

No comment

Q5: Do you have any comments on the proposed changes to the Handbook to implement our new approach?

No comment

Q6: Do you have any comments on the idea of extending our main generic provisions in Annex 2 to cover fraud risk?

No comment

Q7: Do you agree with our approach to senior management responsibility for ensuring fitness and propriety?

No comment

Chapter 3: Reviewing our Approved Persons regime

Q8: Do you agree with our proposal to delete the sole trader function (CF7)?

Yes, this would seem to be a proportionate measure.

Q9: Do you agree with our proposal to delete the significant management function annual reporting requirement?

No comment

Q10: Do you agree with our proposals to merge the significant management  functions and the systems and controls functions?

No comment

Q11: Do you agree with our proposals to change the scope of the customer functions, so that they do not apply to individuals that do not deal with private customers?

We agree that there is likely to be a degree of self-regulation within non-private customer business and feel that these customers are better equipped to make reasoned judgements about firms and individuals with whom they do business.

We do believe that it is important for FSA to reinforce the role of a firm in determining fitness and propriety of individuals as there seems to be some confusion about this proposed change and its impact.

The FSSC is aware of strong opposition to this particular proposal from a number of firms.  The FSSC would consider taking on the maintenance of a register of qualified individuals if there was industry support for this.

Q12: Do you agree with our proposal to delete the Corporate Finance Adviser function (CF23)?

Yes

Q13: Do you think that we should pursue option a), b) or c) above? Do you have any information on the practical implications, costs and benefits of each option?

Option c is attractive for its simplicity and would lead to less administration and therefore lower costs for firms and FSA. However, we believe that CF22 does encourage firms to consider how and when they assess an adviser as competent and serves a valuable purpose although we are aware that some firms do not use CF22. There is often confusion between passing an examination and the assessment of competence and we suspect that without the trainee function, firms may use attainment of an appropriate examination as a proxy for competence. It is our view that this would be detrimental to the industry and might pose risks to consumers. Passing an appropriate examination is one aspect of training and competence and will not provide the evidence of ability to carry out the actual role itself. There are many examples where an individual may have passed a knowledge based examination but is not yet competent to undertake a particular role unsupervised. 

However, it is difficult to have just one trainee function where it does not exist for, say investment managers who also have a period of time to achieve an appropriate examination. 

In considering whether to make further changes, FSA should conduct consumer research and review how frequently customers access the approved persons register on its website.

Q14: Do you have any views on how we should implement any changes that we make to the controlled functions?

No comment

Q15: Do you agree that firms should benefit from these changes and will not face costs of more than minimal significance as a result of them? Do you have any information on the likely costs and benefits involved?

No comment

Q16: Do you have any comments on our proposed changes to the Handbook (in Annex 3) to implement our proposals?

No comment

Q17: Do you have any comments on further changes that could be made to the Approved Persons regime in the future?

No comment

Chapter 4: Reviewing our Training & Competence regime

Q18: Do you agree with our proposal to disapply the detailed training and competence requirements in TC2 in respect of activities carried on with or for non-private customers?

We recognise that the proposed changes to the Training and Competence Rules are focused on those areas where there is least risk to the FSA’s statutory objectives – in activities with and for non-private customers; and the Commitments still apply to everyone working within financial services firms. It remains a firm’s responsibility to ensure that its staff are competent. There is no single measure of competence – it depends on an individual’s job role, the firm’s customers and the products and services it offers. It is entirely appropriate that the firm determines what “competent” looks like for its employees.

Requirements for employee competence will continue to exist and we believe that it is important for FSA to reinforce this. It is important that all organisations realise that the removal of the requirement to pass an appropriate examination does not negate the requirement for competence.  There appears to be a degree of confusion in certain quarters and a concern that the proposals could lead to a loss of employee competence.

The FSSC supports firms in all areas of the financial services industry in working with professional and trade bodies to develop qualifications which are fit for purpose. We believe that firms and individuals will continue to use well-designed qualifications to demonstrate competence, increase professionalism and demonstrate to others that they have the requisite knowledge and can apply it.

There are many examples of individuals taking such qualifications for their own professional development – in general insurance and fund management. 

Q19: Do you agree that firms would benefit from these changes and would not face costs of more than minimal significance as a result of them? Do you have any information on the likely costs and benefits involved?

Requirements for employee competence continue to exist and the FSSC supports firms in all areas of the financial services industry in working with professional and trade bodies to develop qualifications which are fit for purpose. Firms and individuals will continue to use well-designed qualifications to demonstrate competence, increase professionalism and demonstrate to others that they have the requisite knowledge and can apply it.

Clearly if firms cease putting their staff through examinations, they will save study fees, examination entry fees and study time. However, we do not anticipate a wide –spread decrease in examination entries. Firms will still want to use examinations as part of their assessment of an individual’s competence and it is much more cost-effective to use external qualifications. It is interesting to note that no firms have yet applied to run their own appropriate examinations after considering the risks and responsibilities. The reassurance of using an externally validated assessment which is accredited by the FSSC and QCA provides reassurance to learners, employers and customers as well as recognition for the individual. For many, it will be the continuance of lifelong learning and may be the first step to achieving a professional qualification or a Chartered title. 

It is important to note the position of the professional and awarding bodies who could see a substantial drop in their examination-related income if firms no longer used their examinations. This could lead to the non-availability of affordable qualifications which could have a wider impact.  For example, there may be fund managers, working with private customers, who are required to pass an appropriate examination yet not have access to one which meets their needs. This situation could arise if the professional bodies no longer offer an appropriate examination on the grounds of viability. The FSSC will work with awarding bodies to develop a qualifications strategy for the sector to ensure there is good coverage of job roles both with standards and qualifications fit for purpose.

We are aware of some activities where the appropriate examination (before review) does not address the needs of the role – for example, property fund management.  We would understand why such firms would support the proposals as they find it frustrating to take an examination which has little relevance to day to day work.

One area where we believe assessments will continue to be important is those areas described as UK regulatory. At present, individuals with a recognised overseas qualification or an (older) professional qualification are often required to take a UK Regulatory module. We believe that knowledge of UK law and FSA regulation should be an important part of assessing an individual’s competence and that this should not be overlooked in the event of the examination requirement being removed for qualified individuals moving to the UK or into an activity covered by TC2 at present.

Q20: Do you have any comments on the draft amendments to the Training and Competence sourcebook which would give effect to our proposals (see Annex 3)?

The Skills Council’s review of appropriate examinations continues as planned. Standards have been published recently for overseeing activity and the third strand – advising on securities and derivatives - is currently underway with support from the industry. Employers and learners can have confidence that qualifications which are based on the standards developed by the FSSC with the industry will meet their needs. The criteria for approval and inclusion on the list of appropriate examinations means that the awarding body is recognised and complies with best practice. 

We would continue to develop Examination standards although they would not be Appropriate Examination Standards. This would provide the same degree of confidence to those opting to take qualifications as is provided to those compelled to do so, in terms of relevance and quality assurance.

Q21: Do you agree that we should review TC as a whole, and do you have any specific suggestions for further changes that could be made to the Training and Competence regime?

It would be helpful to have a closer fit between APER and TC.

Chapter 5: Reviewing our retail Conduct of Business regime

Q22: Do you have any comments on our approach for simplifying the structure and presentation of COB, particularly with reference to the planned new structure set out in Annex 5? For example, do you have suggestions on how the new structure could be made easier to navigate or whether any other subjects merit separate chapters?

No comment

Q23: Do you have any comments on our approach of moving towards high level rules or views on achieving a balance between high-level rules and certainty for firms?

No comment

Q24: Do you have any observations on the likely costs and benefits of our proposals (including data to support your comments where possible)?

No comment

Q25: Have you any views on our approach, or additional suggestions, for easing the regulatory burden for smaller firms without reducing protection for consumers?

No comment

Q26: Do you have any comments on our implementation proposals?

No comment