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Cracking the Code

by: By James Mayne, director of compliance services at Competent Adviser
  • 22/09/2003
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Keeping on top of the MCCB's requirements is going to be vital if firms are to receive full recognition from the FSA next year

With brokers having to spend so much time coming to terms with the requirements of the Financial Services Authority (FSA) it is easy to forget that mortgage firms must continue to comply with the requirements of the Mortgage Code Compliance Board (MCCB). And, when it comes to the area of training and competence, any omission in the lead up to Mortgage Day could prove rather expensive.

I am sure that I was not alone in welcoming the FSA’s decision, as part of its transitional provisions, to ‘grandfather’ existing MCCB qualified advisers into its own training and competence requirements.

And the news that it has proposed not to include an additional mortgage top-up examination, which means that firms will only need to ensure that employees are familiar with the new regime, is also an encouraging development.

This sounds a sensible approach but as always the devil is in the detail and the actual draft rules do need careful inspection.

The draft rules state that: “In respect of an individual employed by a firm as at 31 October 2004, if that individual had before that date been assessed as competent by a firm in accordance with the rules of the Mortgage Code Compliance Board…the firm will not contravene any of the provisions of Rule TC2.4.5R provided that the activity to which the individual engages in or oversees continues to be the same…before the 31 October 2004; and the individual has not experienced any significant break of employment since the previous assessment.”

For those unfamiliar with FSA Rule TC2.4.5R, this requires that a firm must not allow an adviser to advise clients unless that adviser has been formally assessed by the firm as competent and has passed the appropriate approved examination.

A question of competence

What this means is that provided you are assessed as competent under the MCCB rules you can continue to operate in an adviser capacity as normal from 1 November 2004 without your firm having to reassess your competence in line with FSA requirements. If not this would probably prevent you from working without close supervision or at all until they had done so. Of course you will still need to meet the other parts of the training and competence sourcebook such as maintaining competence but not having to be re-assessed as competent is an important relaxation.

This only leaves the MCCB’s rules to worry about, however, these should not be taken lightly. Being assessed as competent is not simply demonstrating that you have passed the CeMap examination. The rules are actually far more onerous than most people think. The MCCB has what it calls its ‘fitness and competence’ requirements rather than ‘training and competence’ rules, though to be honest they are not too dissimilar to the proposed FSA regime.

Under the MCCB requirements, we were all aware that advisers had to pass one of the required examinations by last New Year otherwise they could not continue to provide advice unless supervised by a qualified adviser. But what about the other stipulations? In brief the main requirements are that:

• Firms have to keep an up to date statement of competence levels, which specify the skills, knowledge, experience and professional qualifications required of its advisers.

• Firms have ‘appropriate’ arrangements in place to ensure that an adviser maintains their competence levels.

• Firms have established a set of measures by which they can monitor an adviser’s competence and undertake regular reviews of each adviser’s competence against these.

• Firms have established a system of supervision and monitoring of its advisers and trainee advisers. However, supervisors have to have the appropriate technical knowledge, assessment skills, coaching skills to act as a supervisor.

• When a firm recruits an individual it must follow a recruitment process that takes into account the knowledge and skills of the individual. And it must take reasonable steps to obtain sufficient information about the individual’s previous relevant activities.

• At appropriate times all firms have to determine the training needs of its advisers and trainee advisers and organise appropriate training to address those needs. This training has to be timely, planned, appropriately structured and evaluated.

Compliance costs

These are all requirements that firms should already have in place and have incorporated within their training and competence scheme. If they have not they are not meeting the existing MCCB fitness and competence rules. Of equal importance is the fact that by not meeting these rules they will not be able to rely on the FSA transitional provision rules – and that could be extremely costly indeed.

For any firm that is not currently operating a compliant training and competence scheme, I would suggest that they dig out the MCCB rules and start implementing a scheme immediately. For those that have one but have been a bit lax in following it through, I recommend that they start to do so.

Having one area of the regulation covered off before the FSA takeover next October will be a major benefit to those firms when you consider everything else that will need to be implemented.

l To familiarise yourself with the MCCB’s rules visit: To find out more about the FSA’s proposals as regards training and competence visit: and follow the links.


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