global insurance management

Competence and Ethics

Apr 15 2011

Competence and Ethics

Relevance:             All firms and Approved Persons

Action required:     Review responsibilities for T&C, ensure all Approved Persons aware of additions to definitions of ‘unbecoming behaviour’ for Approved Persons.

Back in July last year we referred firms to an FSA Consultation Paper that included proposals to amend or add to the rules covering Competence and Ethics.  Well, in December the FSA confirmed that it was going ahead with most of what it had proposed and so this is a reminder to firms and individuals of what has taken effect since the start of the year.

As previously stated, some of the issues relate more to investment firms and mortgage brokers but all firms are captured in one way or another.

We will split the details into the same 3 areas used by the FSA; i.e. Competence, Qualifications and Ethics.


  • introduction of a 30 month time limit within which an individual must obtain an appropriate qualification (there are no requirements for general insurance and none are proposed) required for the relevant activity undertaken;

o    the time limit starts when the individual commences the relevant activity and is working under supervision - not when they start a training programme.

  • retaining transitional provisions on designated investment business;

o    reliance on Continuing Professional Development (CPD) will be reviewed during 2011;

  • clarification of governance arrangements for competence;
  • Statement of Principle 5 now includes the following:

The appropriate approved person performing a significant influence function should take reasonable steps to satisfy himself, on reasonable grounds, that each area of the business for which he is responsible has in place appropriate policies and procedures for reviewing the competence, knowledge, skills and performance of each individual member of staff.

  • introduction of guidance for implementing a training and competence (T&C) scheme.
  • The FSA is going “to work with the industry to formulate suitable and pragmatic guidance on what a T&C scheme might contain, with a view to introducing the guidance in Q3/2011. In the meantime, firms will have the flexibility to start, or continue, establishing a TC scheme if they want.”


  • review and, where necessary, update of appropriate examination standards every 3 years;

o    The FSA will own and oversee the production and changes to examination standards in future.

  • publication of the full list of appropriate qualifications.

o    The addition of qualifications to the lists in the FSA Handbook will use the monthly Handbook notice.


  • additional descriptions of behaviour added to the Statements of Principle and Code of Practice for Approved Persons.

o    Deliberately not paying due regard to the interests of a customer and deliberate acts, omissions or business practices that could be reasonably expected to cause consumer detriment will not comply with Statement of Principle 1 - An approved person must act with integrity in carrying out his controlled function;

o    Failing to pay due regard to the interests of a customer, without good reason, will not comply with Statement of Principle 2 - An approved person must act with due skill, care and diligence in carrying out his controlled function

  • The FSA is also disappointed to note from their research that knowledge of APER among the approved persons population is so low. They point out that that adherence to APER is a vital part of retaining approved persons status and that they expect approved persons to understand their obligations under APER and the consequences if they fail to adhere to them.

What happens now?

As indicated, these issues have been effective from 01 January 2011.  The following actions should be considered:

  • Only new investment and/or mortgage advisers will be affected by the 30-month time limit; no action required if already qualified, except for the “gap-filling” requirements.  RDR deadline for existing investment advisers remains as 31/12/2012.
  • Board members should now be looking to confirm that there is sufficient evidence available to demonstrate the ongoing competence of its employees and might consider introducing a T&C Scheme to help with this.
  • All Approved Persons should revise their knowledge and understanding of their regulatory obligations.  It is useful to conduct an annual “Fit and Proper” exercise, which includes a reminder of the Statements of Principle and Code of Practice for Approved Persons.

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