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CONFERENCE CALL: COUNTING THE COST OF ‘COMPETENCE’ WITH COUTTS

Chris Hamblin, Compliance Matters, Editor, 6 November 2013

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At a recent ‘training and competence’ conference in London hosted by the Chartered Institute for Securities and Investment, Paul Slater, T&C director at Coutts explained how compliance departments should assess people’s competence at financial firms and make sure that their skills do not decay. Absolutely no mention of human resources departments was made by either the speaker or the delegates.

 At a recent ‘training and competence’ conference in London hosted by the Chartered Institute for Securities and Investment, Paul Slater, T&C director at Coutts explained how compliance departments should assess people’s competence at financial firms and make sure that their skills do not decay. Absolutely no mention of human resources departments was made by either the speaker or the delegates.

Slater began by observing that if the T&C team in question is
evaluating a new entrant to the industry, the consequent bout of
training is bound to take a long time. As things such as products
and capital gains tax and income tax, not to mention regulations,
are changing all the time in the wealth management world, he argued
that skills were always having to change and that it was the
compliance office’s job to compel staff to keep abreast of these
changes.

“If you’re recruiting new individuals, look at their existing knowledge.
They have have sat the derivatives exam, but can they work
out how many call options to organise in a certain situation? Don’t
allow them loose on the clients until they are ready. You could issue
a personal authority letter, saying ‘you’re not authorised to do
it yet,’ then another saying ‘you are now a CF30, you can now do
this.’ This makes it explicit. It creates a demonstrable record. You
can get them to sign it.”

He mentioned the retail distribution review’s most well-known
T&C requirement – that all retail advisors have to pass a ‘level
4’ exam. The requirements described in the RDR apply to retail
investment advisers, whom the Financial Conduct Authority defines
as employees who carry out activities 2, 3, 4, 6, 12 and 13 in
Appendix 1.1.1R to the Training and Competence Handbook. (TC).
The term ‘retail client’ is defined by the FCA (in COBS 3.4.1) as a
client who is not a professional client or an eligible counterparty.


THE FOUR ‘LEGS’ OF T&C

Slater then produced a simple diagram which looked at four legs
of the T&C process. Resembling a clock-face, it depicted the first
quarter-segment as the ‘on-boarding’ process; the second segment,
which went to the bottom, as the training stage; the third
segment, coming up to the final quarter-hour, as ‘attaining competence’;
and the forth leg, coming back up to the top of the circle,
as ‘maintaining competence.’ He had this to say about each
of them.

On-boarding. Here it is worth asking whether the new arrivals
have brought along their former continuing professional development
(CPD) records from their previous firms. Reference checks
and business checks are de rigeur at this stage.

The training stage. Here the compliance/T&C team could document
their progress as they are trained to cope with systems or
products they have not encountered before. This might include
general complaints training and general compliance training.

Attaining competence. Here the training-and-competence team
might carry out role-plays to ensure that the new advisers have
completed their anti-money-laundering training or systems training
to a good standard. Slater said blunty: “Can you afford to rely
on the word of a former employer? The answer is no, isn’t it?” He
pointed to FCA rule 2.1.1 which states: “A firm must not assess an
employee as competent...until the employee has demonstrated
the necessary competence...and has attained each module of an
appropriate qualification. This assessment need not take place
before the employee starts to carry on the activity.” With this
in mind, he said, the firm should make sure that the newcomers
have the right qualifications before they are authorised to deal
with the customers and even then they should remain under full
supervision. Eventually it will be safe to place them on partial
supervision, with an experienced individual who can give them
feedback.

Maintaining competence. Slater pointed to FCA rule 2.1.12 which
states that every firm must review its employees’ competence
regularly and frequently and take appropriate action to ensure
that they remain competent in their jobs. He thought that this
fourth area required less oversight than the other three. Any
changes that happen to products should, he thought, occasion
this process. All employees should complete a minimum of 35
hours of CPD work every year, of which 21 must be ‘structured’.
Many people at the conference talked about the disagreements
between accredited bodies (ABs) about the nature of ‘structure’
and what the term should mean.

Knowledge, of course, decays over time and Slater thought that
this was the main danger that this fourth stage of T&C was designed
to ward off. He also made the very valid point that even
someone who has passed an exam with a mark of 70% must be
weak in some of the areas of his subject purely because he has
not attained 100%. He was very enthusiastic about the use of surveillance on this leg of the T&C journey: “You can have T&C
officers. They can listen in to the calls of portfolio managers and
investment managers for T&C purposes. They can look at their
interpersonal skills at the same time. Just because they have the
knowledge it doesn’t mean that they are good with clients in
the live field. You could stage a team meeting. If someone isn’t
contributing well, maybe he’s a bad advisor.”


THE NEXT STAGES FOR T&C

Slater looked at the challenges that T&C might face in the future,
saying that the RDR had only imposed a “minimum standard”
which would have to be improved on. One obvious area for improvement,
he thought, was CPD, which at many firms is still
thought to be something of an insubstantial formality. He looked
forward to a time when it would become more ‘qualitative’.

On the subject of market trends, Slater detected evidence that
firms had been ‘watering down their services,’ especially in relation
to clients with less than £500,000 in investible assets: “A lot
of us believe that clients are still not trusting banks. Clients could
be looking at acting on an execution-only basis. Will they [the advisers]
be doing what’s right for them?”

He also noted that the FCA had promised to be more interventionist
than its predecessor, the body often derided as the Fundamentally
Supine Authority. When asked whether the 35-hour rule
was just for retail business he said that it was designed for that
purpose but added that he knew of some firms that had applied
it to T&C in all sectors. Ruth Martin, the managing director of the
Chartered Institute for Securities & Investment, one of the largest
ABs, said that all of her chartered members had to complete their
35 hours’ worth of CPD irrespective of where they worked, i.e.
irrespective of whether their field was retail advice or something
else such as operations.

For un-chartered members, she said that the CISI recommended
the 35-hour minimum but did not yet insist on it. She agreed with
Slater that many firms were now insisting on it ‘across the piece’
and not just in retail business as defined in the FCA’s conduct-ofbusiness
sourcebook.

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