IFA Online

8 Oct2015

IFA Online: the bodies minding your standards

Alex Morris, partner and IFA at Financial Relationships, on the FSA’s plan for newly accredited bodies to audit firms’ professional standards on its behalf post-RDR.

A new requirement for firms to notify the FSA about serious competence and ethical issues has been brought in, with effect 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 have failed to comply with a Statement of Principle during advisory duties.

Principle actions

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

  • A new requirement for firms to notify the FSA about serious competence and ethical issues has been brought in, with effect 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 have failed to comply with a Statement of Principle during advisory duties.

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. “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 we would have to consider disclosing cases of bad advice only where we think the adviser should have known better and where we believe they provided bad advice deliberately: not a likely scenario but one which the FSA would need to be aware of. Multiple cases of poor advice from any one adviser would likely result in them being no longer deemed competent.

Intrusive approach

It is 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 concerns us a little that the FSA says (on pages 15 and 16 of the FSA paper) 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 and standards to help us follow best practice.

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 be 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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