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Testing times

by: By James Mayne, director of compliance services at Competent Adviser
  • 08/09/2003
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The proposals and amendments in CP194 will force companies to be responsible for choosing the right examinations for their advisers

Any proposal which is described by the Financial Services Authority (FSA) as being designed: “to give firms greater flexibility and to reduce our costs and make effective use of our resources” must be extremely welcome. And that is the stated purpose of CP194 Amendments on the Training and Competence Sourcebook – including consultation on competencies for Mortgage Advisers. So what exactly does it include and is it really good news for the industry?

The FSA’s training and competence sourcebook (which mortgage advisers will be subject to from 31 October 2004) is a combination of rules and guidance designed to ensure that the adviser has the appropriate standards of competence, knowledge and skills to carry out their duties.

Examinations play a key part in providing the adviser with the necessary skills and knowledge and, under the current system, the FSA sets out what ‘approved’ qualifications are needed by the adviser in their respective permitted activities – but this is all about to change.

Appropriate examination

The FSA now proposes to make the standard an ‘appropriate’ examination, as decided by the firm in the circumstances, rather than an examination that is ‘approved’ by the FSA in the training and competence sourcebook.

What this means is that the FSA will no longer determine what examinations must be passed. This decision will be passed to the firm who will have the freedom to decide what examination their advisers need to pass to meet the competency requirements. To prove that the firm has chosen an appropriate examination, they will need to refer to the list that will be provided by the Skills Council for Financial Services (SCFS).

So is this nothing more than a case of moving a list of examinations from one body to another or does it actually bring any benefits to firms and their advisers? There is certainly a strong argument to say that placing the responsibility of maintaining a list of appropriate examinations for the industry within a skills council focused on developing the skills of individuals, working within it, is a positive move. But equally when it comes to compliance, the industry needs certainty. Flexibility for firms to make decisions around what is appropriate is welcome but strong guidance is needed to know what the boundaries are that they need to work within.

The SCFS is now in development and hopes to get its license early in the new year. Its role is to bring together employers, trade unions and professional bodies, working with Government, to develop the skills that UK businesses need. The FSA has started off an examination review with proposals set out in CP157, this work will be passed to SCFS in the near future.

The FSA plans to have a close and continuous relationship with the SCFS so that the examinations list remains an important and helpful element in a firm’s assessment of competence of its employees.

Importantly, existing advisers and those currently studying for an approved examination should not be adversely affected by the changes. All examinations currently required should continue to be recognised until such time as new examinations are in place.

Sole traders

Another important change to the Training and Competence Sourcebook is the additional guidance that has been added to assist sole traders, and this is especially relevant to single mortgage advisers looking to be directly authorised next year. The guidance clarifies the position for sole traders looking to supervise themselves under their own training and competence scheme. This remains possible but individual’s should make arrangements with external bodies from time to time to have their competence assessed, as it is not easy to be objective about one’s own performance.

So what does CP194 say about mortgage examinations? It has restated what we already knew from CP186 that the FSA intends to introduce an examination for those advising on mortgage sales and a separate examination for those providing advice and non-advice on lifetime mortgages.

We also know that the FSA intends to ‘grandfather-in’ advisers who have already met with the Mortgage Code Compliance Board’s fitness and competence requirements.

The FSA, through its own series of working parties, has focused on what competence really means for the mortgage adviser and what the examination content for mortgages and lifetime mortgage should contain. It has set out in the consultation a summary of the learning outcomes and indicative content of the examination.

It has passed its feedback on the syllabuses to the Financial Services Skills Council, who assuming the proposals in this consultation are agreed, will have the responsibility for securing an appropriate examination as part of its overall examination review. It is this feedback and indicative content that it is consulting on. For example, the learning outcomes include items such as:

• Understand what a mortgage is and know the definition of a regulated mortgage contract

• Know and understand the home-buying process, the key parties involved and their roles

• Know and understand the key features of the common types of mortgage product and interest rate options.

To read a full copy of this consultation paper, together with all of the FSA’s recommendations, visit the FSA web site: www.fsa.gov.uk The consultation ends on the 30 November 2003.

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