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  • 05/09/2002
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CP146 has arrived, but what are the initial implications for brokers as regards training?

The Financial Services Authority’s (FSA) attitude to training and competence, as laid out in CP146, is quite straightforward. Essentially its principle for business is that it requires authorised firms to ‘take reasonable care’ to organise and control themselves properly.

According to CP146, this approach will be set out in a Training and Competence source book, which in turn will make up a part of a full FSA handbook. The source book will be made up of two parts. Part one will be ‘Commitments’ ‘ guidance for all regulated firms. This section will ensure all firms have taken the necessary steps to make sure staff are ‘competent, supervised and trained’ to an appropriate level for the business which the firm conducts. It has already been decided that mortgage lenders and administrators ‘ as long as they do not advise or arrange mortgages ‘ will not be held to anything further than this section of the source book.

The second part of the source book is the most important for the intermediary market with regards to training. This section covers specific requirements for firms involved in particular activities. The FSA plans to set additional training and competence requirements over and above the ‘Commitments’ section for mortgage advice. The requirements here will cover recruitment, training, competence qualifications and supervision, so mortgage advice will be covered in both parts of the source book.

One of the most noteworthy parts of CP146 is where it states it is, ‘aware of the requirements set by the Mortgage Code Compliance Board (MCCB) under its rules in support of the Mortgage Code.’ This is a reference to the existing MCCB requirement that all staff providing an ‘advice and recommendation’ level of service have passed the examination aspect of its fitness requirements by 31 December 2002, and is important because the Mortgage Code will remain compulsory until the FSA takes over in 2004.

However, the FSA has not said it will take these examinations into account ‘ only that it is aware of them. David Cliffe, spokesperson for the FSA, says: ‘We recognise the good work the MCCB has been doing in relation to exams, but as to how that would carry forwards no decision has been made.’

Three vital issues

CP146 has highlights three issues when considering a training and competence regime for mortgage selling. First, what kind of mortgage sale should any training regime cover; second, is an examination needed and, if so, what one; and third, over what timetable should any requirements be brought into force.

In CP146 the regulator has concluded that advised sales of standard or higher risk mortgages should carry a full training and competence regime ‘ including an examination. Lower risk mortgages will not attract any specific training requirements. The FSA has specified lower risk mortgages as being those which are for, ‘secured credit cards, secured overdrafts and secured bridging loans for £10,000 or less, or which have a 12-month term and involve regular payment of interest.’ So, in effect, all mortgage intermediaries will come under the umbrella of the second part of the Training and Competence source book.

Interestingly there will be a training requirement for non-advised sales of ‘higher risk mortgages’ using filtering questions. The proposal is that the supervisors and writers of any such filtering questions should also have training including examinations. All other non-advised sales and execution-only sales are to be exempt from part two of the source book.

It is worth mentioning the FSA is interested in opinions of its overall approach to training and competence, in particular views on whether training and competence requirements are necessary for non-advised sales.

One exam for all?

The regulator’s general approach, and aim for its examination regime, is to establish a single modular examination system across the entire financial services industry. It points out the obvious advantages of this approach for consumers, firms and individuals working in the financial services industry.

Cliffe says: ‘There is no firm timetable for establishing this exam, but I am sure it will adhere to the general timetable for the mortgage regime and be established before 2004, but what will happen in practice we don’t know. We would take the general exam requirement into account when designing a mortgage exam.’

Any exam would go through a process of identifying the knowledge and skills that need to be specified for any given role. However, this process has not yet been given detailed thought. Examination providers, including those accredited with providing the current MCCB required exams, will be invited to design exams. The process of working towards a new exam for mortgages will begin as soon as the regulator has the results of consultation on CP146.

CP146 states: ‘We recognise we may not be able to confirm the precise exam requirement much before mortgage regulation starts mid-2004. The FSA recognises this involves a transitional arrangement to give firms time to comply with any requirements, but its length is yet to be decided and the regulator will consult on the matter.’

Cliffe says: ‘The end of consultation is November 11, when collating will begin, so the results, and the beginning of the exam design process, will be in early 2003.’

So what of those who have already passed the mandatory MCCB examinations? CP146 states: ‘Where such requirements include an examination that has been formally accredited and independently reviewed, we anticipate, subject to some due diligence, being able to grandfather such individuals in our regime.’ It adds this will possibly involve a top-up examination and cites as an example a module to ensure familiarity with the FSA regulatory regime for mortgages.

The FSA is calling for brokers to comment on CP146. If there is something that brokers disagree with there is ample time to write to the FSA. However, if there is no response then brokers cannot complain in two years’ time.

Paul Robertson is a staff writer

• For further information visit www.fsa.org.uk


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