The FSA is suggesting the quality of advice delivered to retail consumers is not good enough to warrant removing all prescriptive rules of the Training and Competence regime.
According to a consultation just issued by the Financial Services Authority - entitled CP07/04: The Training and Competence Sourcebook Review – while the FSA has considered removing all prescriptive rules relating to T&C for retail firms and moving to a principles-based system, a study it has commissioned has concluded it is necessary to maintain “compulsory exam requirements in the retail sector” so firms can prove they are compliant with T&C rules, because there would be questions about consumer protection if they were removed.
More specifically, the FSA says it had looked to scrap the T&C sourcebook and replace it with “high-level requirements in the Financial Services and Markets Act (FSMA), the Principles for Business Sourcebook (PRIN) and the new Senior Management Arrangement, Systems and Controls Sourcebook (SYSC)”.
But the FSA believes a small number of exam-related rules may need to be retained as it does not believe the quality of advice being delivered is good enough to warrant complete removal of exams requirements, based on its July 2006 TCF quality of advice study, so it would at least like to cut it back to a third of the current format size.
“Our decision to retain the exam requirements for retail form reflects, in particular, the result of our TCF thematic work on the quality of advice, which suggests it is too soon to step back from prescription in this area,” says the FSA report.
Tracey Mullins, director of public affairs at the Association of IFAs (AIFA), says: "It is essential that the exams system is retained because exams are a requirement of professionalism. A lot of the FSA's quality research looked at firms' processes, whereas the regulator says it is more about the outcomes, but we do have to acknowledge there were disappointing results."
The FSA stresses its long-term aspiration is to remove the T&C Sourcebook altogether and rely on high-level competence requirements and also suggests there are “encouraging signs” the industry may be able to move in that direction, but adds it “cannot do this until we are satisfied that firms have a clear understanding of what is required” and until it has “evidence of an appropriate T&C/TCF culture being embedded in retail firms as a whole”.
The consultation suggests some exam requirements should be maintained in relation to financial advice despite the FSA noting it could potentially create a competitive disadvantage between the requirements on UK-regulated financial intermediary firms and those in Europe who have the right to ‘passport’ into the UK.
Under the terms of the Markets in Financial Instruments Directive (MiFID), the FSA is no longer able to require firms “inwardly-passporting” MiFID-compliant firms also meet their T&C requirements as any T&C requirements are a matter for Home and Member States to set.
But according to the Europe Economics report - the organisation commissioned to investigate the costs and benefits of the retail exams requirements and any potential competition issue - there would be no “undue costs or significant competitive distortions between UK and inwardly-passporting MiFID firms”.
The FSA consultation closes on May 23rd.
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 Julie Henderson on 020 7034 2679 or email [email protected].IFAonline
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