Detailed rules on training and competence will be removed for wholesale firms from next year while a further review will consider extending the removal to retail firms, the Financial Services Authority (FSA) has confirmed.
The change forms part of the FSA’s move towards a more principles-based approach to regulation and will occur when the Markets in Financial Instruments Directive (MiFID) is implemented in November 2007.
Robin Gordon-Walker, press officer at the FSA, says a further review of the regime will take place this year and the regulator might extend the removal of the rules to include retail firms.
But he adds: “At present we don’t feel we can extend the concession to retail businesses as retail customers do not have the same expertise in financial markets as wholesale customers and therefore require more protection.”
One response to the FSA’s consultation paper on training and competence argues it is logical to extend the concession to retail firms, given the FSA’s reassurance competence standards will not be lowered after removing the rules, and Gordon-Walker admits this is a “fair question”.
Wholesale firms will still be required to ensure their employees are competent to carry out the roles assigned to them by virtue of the FSA’s Training and Competence sourcebook, which the FSA says will prevent a lowering of standards within the wholesale markets.
Andrew Whittaker, FSA general counsel, says: “Our decision to remove examination requirements from individuals in the wholesale markets reflects our aim to move to a more principles-based approach by allowing wholesale firms to take their own decisions about the competence of their staff.”
Currently, wholesale and retail firms can choose to create their own in-house examinations, which can be endorsed by the Financial Services Skills Council (FSSC), or they can select from the list of “appropriate examinations” maintained by the FSSC.
As a result of the FSA’s changes, where employees conduct regulated business only with intermediate customers or market counterparties, firms will be able to decide which skills are required for particular activities and whether an examination or some other method represents an appropriate means of assessing competence.
The FSA says firms which decide employees will no longer take an “appropriate examination” will be expected to have “appropriate internal procedures” in place to ensure those employees have an adequate understanding of the regulatory system.
Until MiFID is implemented, such firms can apply for a waiver by consent where they feel a particular employee should not have to pass an appropriate examination.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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