The relatively new head of the FCA, Martin Wheatley, has sought to play down the "be afraid" tone famously set by Hector Sants, his predecessor at the FSA. Does this mean, however, that there is room for complacency and a more relaxed relationship with the regulator? Far from it. Although Wheatley seems to want to pursue a more constructive relationship with the financial services industry, he has adopted a new stance whereby his regulatory body aims to get tough on the individual rather than just the firm. Dismissing the impact of fines  – “To the banks that make billions of pounds in profits, whatever the level of fine, it will get passed on to shareholders” – he has pledged that the FCA will focus on the conduct of individuals, specifically senior management, and make them accountable. 

This message may come as a surprise to the 130 or so people banned from the industry in the last two years, let alone those who have settled nearly £30 million ($45 million) in fines during the same period. They might be forgiven for believing that the FCA was pretty tough on individuals already. Wheatley served notice to senior management that if they are not in control of the market and customer conduct of their staff and they haven’t yet instilled a compliance culture in their firm from the top down, it is they who stand to pay the price for the failings of staff. By inference, this also means the failings of the wealth management firm, its systems and controls.

It should therefore be a given that all registered staff have a clear knowledge and deep understanding of their role - its requirements, objectives and limits and their responsibilities to their employer, the market and the customer. At the same time there must be clear standards of acceptable conduct trained and ingrained into all staff, with objective benchmarking and assessment of both conduct and performance. And yet many of the companies I speak to readily admit that they do not even have simple job descriptions, never mind a robust system for assessing individual performance or conduct in those roles. I meet heads of desk for instance, whose HR files still contain their old graduate trainee job description - the last HR document that they signed.

There is a stubbornly enduring culture of dealing with the symptoms rather than the cause, with audit-driven processes that identify problem behaviours and conduct after they have occurred. Investment in training and technology to enable staff to deliver the highest standards and identify shortfalls as they happen - not in an audit six months later - will give savvy wealth management firms the edge in terms of better product, service and client reputation. It will also give the management and supervisors a better night’s sleep because it is their heads which are on the block alongside those of the misbehaved.

Effective training and competence (T&C) is a contract struck by the firm with the employee, but also with the regulator and the customer. It is an agreement regarding terms that are continually being renewed and defined - including standards, expectations and reviews of how those standards will be achieved. 

A good starting point for a wealth management firm is: clear definitions of roles; responsibilities; personal, client-based and business-based objectives and limits; acceptable risks; and code of conduct. Training and development of staff to ensure that they can reach these standards must be planned individually. The training then needs to be implemented and its completion monitored and logged. If your T&C management system does not do this, then it needs to.  The assessment of the "three Cs" – Competence, Conduct, and Contribution – against agreed benchmarks is the next step to ensure that shortfalls are identified and dealt with.

Testing of knowledge – product, markets, conduct, process and policy – should be performed regularly, as part of the overall assessment process. Rooting out those who are neither delivering nor buying into the compliance-based culture that you are seeking to embed is essential if you are going to address such risks. Remember that these are real risks to your business, your reputation and your career if the worst happens and the FCA holds you accountable (as Mr Wheatley says they will). No wealth management firm can monitor every advisor to ensure that everything that they say and do is compliant. But if those advisers do not know what "good compliance" looks like; if you have not equipped them sufficiently to deliver "good"; and if you have not monitored, enforced and recorded that delivery, then you will be held accountable.

The message is do not be afraid, just don’t stick your head in the sand either. Define your standards, your assessments and benchmarks and invest in a reasonable T&C management system.