Tag Archives: MiFID

competence

Information givers and the importance of competence

The introduction of information givers under the MiFID rules has bee a bit of a game changer.

T&C has been around for over 20 years and that’s a long time. Remember VHS videos, dial up broadband, CDs, Kodak Film, fax machines and phone boxes? Twenty years ago, Apple was on the verge of bankruptcy and is now one of the top ten largest business in the World.

I frequently get asked what’s new in T&C and you know what, I’m mildly embarrassed. Nothing much has really changed since 1993 when the regulator first started talking about it. Yes, of course, there’s been some relatively minor changes. But, unlike satelite television or mobile phones, T&C hasn’t fundamentally changed. The MiFID changes and the introduction of the Senior Managers and Certification Regime are both game changers.

MiFID II and information givers

For firms that fall within the MiFID requirements, roles like paraplanners will be classed as ‘information givers’. Because of this, they must be able to prove they are competent, or they will need to be formerly be supervised. Grandfathering is not allowed. So this dramatically increases the population subject to T&C ‘style’ regulation. This has implications for your:

  • T&C procedures. Most procedures will need to be expanded to meet incorporate ‘information givers’.
  • Knowledge. Who is an information giver and how do they demonstrate the knowledge prescribed under MiFID II at the outset, and on an ongoing basis?
  • Supervision. If they don’t have the necessary knowledge and experience, information givers need to be supervised. For that matter, how can you show the supervisors are able to supervise?

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Competence : The ‘competent employees rule’

The FCA’s Systems and Controls (SYSC) has, like its predecessors, always included the competent employees rule. T&C only applies to a relative small number of people: advisers, those that supervise them and a few specified head office functions. In contrast, the competent employees rule applies to every employee of every authorised firm. So what’s new?

I think this is a point about emphasis. We’ve always thought about T&C first and the competent employees rule second. Perhaps we should be reversing this thinking. The competent employees rule has always been around but it’s never appeared to have been very important to the regulator. Yes we’ve had increasingly strenuous exam requirements on advisers, but when did you last read something about the competence of administrators or paraplanners, for example?

SYSC 5.1.1R states that:  ‘A firm must employ personnel with the skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them’. SYSC 5.1.4G then makes the point that T&C is in addition to this rule.

Implications:

  • Perhaps we need to view ‘competence’ as something that applies to all employees, with additional T&C requirements on top of this. Of all the T&C schemes I see, I’ve yet to see this: a broad statement (or competence policy) for developing competence across the business with T&C as an addendum just for higher risk staff. As I go on, the case for this becomes even more compelling.

Senior Manager and Certification Regime (SM&CR)

The ‘competence’ of senior managers and senior staff within a business is a central reason for the introduction of SM&CR. Senior managers will need to demonstrate their competence at outset and once a year. ‘Significant harm functions’ – those roles that could cause detriment to either the authorised firm, or the client – are also covered.  Again, competence needs to be demonstrated at the outset and once a year. You as the firm will have to certify this is the case and will be accountable if this is not the case.  So you will need procedures to fulfil these requirements.

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Conclusion

If we look at the types of role that are covered by ‘T&C’ procedures or a ‘competence policy’, lets look at now and in a years time:

Pre-9th December 2019
Post-9th December 2019

Advisers

Supervisors

Overseers

‘Information givers’, e.g. para-planners

In Addition:

Senior managers

‘Significant harm functions’, e.g. compliance officer, HR director, IT director, anyone who supervises a significant harm function

Most other staff

Currently, many firms are limited in how they define and measure competence of their staff across the board. Historically, the emphasis has been on the higher risk roles such as advisers. This is understandable but it’s a bit of a VHS video moment; it worked but now is the time to move on.

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