Firms to notify the FSA about serious competence

8 Oct2015

panacea IFA article: firms to notify the FSA about serious competence

Alex Morris, Partner and IFA at Financial Relationships LLP, says the FSA intend that the newly Accredited Bodies will audit firms professional standards on its behalf under its watchful eye post RDR.

Writing in IFAonline, he says a new requirement for firms to notify the FSA about serious competence and ethical issues has been brought in, effective from 1 July 2011.

Interestingly, the paper states the FSA expects firms to notify them of issues as they are identified, including issues arising after the Adviser has ceased to be employed by them.

Causes include if an Adviser is deemed by the firm to no longer be competent, or has failed to attain an appropriate qualification within the time limit allowed.

Also, if they have performed an activity requiring competency without first demonstrating competence (and without appropriate supervision), or has failed to comply with a Statement of Principle during advisory duties.

The proposed Statements of Principle in last June’s consultation paper on competence and ethics are:

  • Act with integrity – “paying due regard to the interests of a customer”,
  • Act with due skill, care and diligence – “deliberate acts, omissions or business practices that could be reasonably expected to cause consumer detriment”,
  • Observe proper standards of market conduct,
  • with the FSA and with other regulators in an open and cooperative way and disclose appropriately any information of which the FSA would reasonably expect notice.

The FSA expects to be notified as soon as possible once a firm understands the nature and extent of the failure.

Failing a Statement of Principle where there is no significant risk of customers being disadvantaged and no suggestion of any serious fitness and propriety issues would not trigger notification, however.

“Acting with due skill, care and diligence” could potentially cover an awful lot of ground, maybe including cases of poor advice, which of course may disadvantage customers.

Our understanding is that we would only have to consider disclosing cases of bad advice where we think the adviser should have known better and we believe he/she deliberately provided bad advice – not a likely scenario but one which the FSA would clearly need to be aware of.

Multiple cases of poor advice from any one adviser would likely result in them being no longer deemed competent, which would have to be notified.

It’s another example of the more “intrusive” approach that the FSA have adopted to ensure standards are maintained. I assume we will undergo annual visits from the Accredited Bodies so that they can carry out an audit and document their findings to the FSA.

It does concern us a little that the FSA say (on pages 15 and 16 of the FSA paper) that Accredited Bodies are free to exceed the FSA’s requirements if they choose, as we need to have a clear understanding of the FSA’s requirements, standards to help us follow best practice.

For example the requirement is to sample 10% of CPD, but the FSA says it welcomes the practice of checking a higher percentage, however this presents little difficulty as firms normally monitor CPD on a regular basis.
Some further clarity would therefore be very helpful but clarity on standards will no doubt develop once the initial findings of the Accredited Bodies are fed back to the FSA and evaluated.

However we welcome the clarification of qualifications and CPD requirements and are pleased to see that these are being extended to other professionals such as those advising in the Hedge Fund and Derivative Arena.

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