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Compliance Forum Margaret Spong
16th May 2007
www.sii.org.uk
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FSA CP 07/4 and the SIIs strategy
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Summary

• Highlights from our response
• F.S.S.C role
• Controlling CF 30
• Influence of PBR, TCF and ethics
• T C rules
• SII action

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Our response

• We welcomed
• - FSA valuing examinations, recognising their
  contribution to attainment of competence and
  retaining them for the retail sector with a safe
  harbour
• EE reporting retail firms support for compulsory
  examinations
• FSA maintaining competence through CPD
• FSA promoting a good standard of ethical
  behaviour
• The removal of time limits on passing exams

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We also welcomed .

• The application of the high level competence
  requirement to all UK authorised firms including
  wholesale.

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MiFID Level 2 Article 5 and draft SYSC rules

• 3.1.6R .. employ personnel with the skills,
  knowledge and expertise necessary for the
  discharge of the responsibilities allocated to
  them.
• 3.1.7R When complying with the competent
  employees rule, a firm must take into account
  the nature, scale and complexity of its business
  and the nature and range of financial services
  and activities undertaken in the course of that
  business.

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We have expressed concerns over

• The exemption for staff of EEA firms investors
  should be alerted if their adviser is unqualified
• Longer term disapplication of the retail T C
  Sourcebook

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We recommend that

• Competence should be assessed regularly
• Additional emphasis should be given to CPD in
  maintaining competence
• Supervisors should continue to pass an exam
• The sturdy breakwater in SYSC 3.1.10 and 5.1.5
  should be strengthened.

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Draft SYSC 3.1.10 and 5.1.5

• If a firm which is/is not a common platform firm
  requires employees who are not subject to an
  examination requirement to pass and exam from the
  list of appropriate examinations maintained by
  the F.S.S.C, the FSA will take that into account
  when assessing whether the firm has ensured that
  the employee satisfies the knowledge component of
  the competent employees rule.

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The Financial Services Skills Councils role

• Financial Services Skills Council holder of the
  Appropriate Examination lists
• The Skills Councils proposal to accredit T C
  schemes
• The new appropriate examination list for
  wholesale firms unofficial advice

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CP06/15 and Controlled Functions

• Proposal to merge all customer functions into
  one CF30 covering activities as diverse as
• advising on packaged products,
• dealing in derivatives,
• advising on Corporate Finance,
• managing investments.

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Influence of PBR, TCF and ethics
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What changes will need to take place in firms?

• It will require those who advise the senior
  management .. to embrace a new skill set. Rather
  than advising on specific rules, and the
  precedents they will be required to take a
  wider and more judgemental set of decisions ..
  whether particular practices are reconcilable
  with desirable outcomes and general principles.

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What does this mean for T C?

• Do marketing and promotional staff really
  understand their new products? Are the products
  designed to meet client needs?
• Is advertising not just true, fair and not
  misleading but does it pitch the product at an
  appropriate level to the right target market?
• Do sales incentives maximise sales or incentivise
  sales to an appropriate audience?
• Are queries and complaints properly handled?

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Last but not least .. ethics

• The draft T C rule 1.1.4G refers to an
  employees ability to achieve a good standard of
  ethical behaviour.
• For clients to receive appropriate advice in a
  PBR world underpinned by TCF, staff have to work
  within an ethical framework.
• Ethics is driven primarily by the culture of the
  firm but SII provides guidance through its
  code.

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Whats happening with T C?

• Mind bullet from the Chairman
• .. it should be the responsibility of those who
  manage wholesale firms to employ and train staff
  competent to do the job and for them to decide
  on the appropriate tests, exams and
  qualifications they find most useful to deliver
  that outcome.

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Competent employees rule

• What does competence embrace?
• Knowledge
• Skills
• Expertise
• An individual must have the necessary technical
  mastery of his subject and the skills and
  expertise to apply that knowledge appropriately
  to practical, real-life situations.
• 1.1.4G This includes an employees ability to
  achieve a good standards of ethical behaviour.

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Draft T C rules coverage

• Assessing and maintaining competence
• Supervising and assessing
• Examination requirements before starting
  activities
• Selecting an appropriate examination
• Training needs
• Maintaining competence
• Record keeping

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Draft T C rules whats gone?

• Mandatory exams for wholesale
• Time limits on passing exams
• T C rules on Recruitment (current TC2.2)
• A lot of prescription

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Whats new?

• Commitments in current rule book replaced by high
  level competence requirement in SYSC.
• New term competent employees rule
• Explicit reference to ethical behaviour
• Optional for supervisors to hold an Appropriate
  Examination except possibly for supervisors of
  staff advising on packaged products
• A new format for the list of activities and
  products/sectors to which T C applies.

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Draft T C rules what have you got think about?

• What are your criteria for recruiting a new
  member of staff?
• 2.1.3G A firm should have clear criteria and
  procedures relating to the specific point at
  which the employee is assessed as competent
• 2.1.8G firms may wish to impose limits on the
  time they allow their employees to pass an
  appropriate examination or place limits on the
  number of times the exam can be taken.

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Implications for firms

• CF30 record change of role and exam taken
• Replacing the detail of the T C sourcebook with
  your own criteria for recruitment and permitted
  exam attempts
• Document what led the firm to move a member of
  staff from trainee to competent employee
• Checking what new staff know if the firm they are
  moving from does not use industry benchmark exams

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What is the SII doing to respond?

• Exams
• CPD

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Appropriate Examination list

• Supervisory roles of certain administrative
  activities
• As now but IAQ is top of the Appropriate
  Examination list
• - Introduction to Securities and Investment
• Key 4 (industry awareness)
• Principles of Financial Regulation /Financial
  Regulation
• Key 5 (regulatory knowledge)
• IAQ technical units
• for certain Key 6 (technical knowledge)
  activities

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November 07, advising and dealing in securities
and derivatives - retail

• Introduction to Securities and Investment (1
  hour)
• Principles of Financial Regulation /Financial
  Regulation
• (1 hour)
• Investment and Risk
• (1.5 hours)
• Securities/Derivatives/Securities and Financial
  Derivatives
• (2 3.4 hours)

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November 07, advising and dealing in securities
and derivatives wholesale

• Introduction to Securities and Investment
• Principles of Financial Regulation
• Securities /Derivatives /
• Securities and Financial Derivatives

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CPD whats the SIIs response?

• CPD scheme proving popular with firms
• Over 150 CPD events Conferences and Training
  Courses
• More PIFs new Wealth Management, Corporate
  Finance
• Webcasts, podcasts
• SI Review
• Regulatory Refresher with E-CPD modules under
  development
• Regulatory Update
• Infolink
• Sitting more exams Diploma standalone units ..

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Any questions?