Training and Competence

On Friday 21 May the South West welcomed Sarah Thwaites from FSA to talk about ‘what T&C means for you’. The event was co-hosted with the Insurance Institute of Bristol. Mike Jones, Compliance Advice Manager from Axa gave the industry response relating his practical experiences with T&C and plans to implement the new regime for general insurance in Axa. Our thanks go to Axa for hosting the event in their magnificent auditorium, which was big enough to accommodate one of our largest audiences of around 80 people.

Sarah went through the T&C Sourcebook going back to basics. She emphasised the T&C Sourcebook was one of the smallest shortest in the Handbook with minimal rules and practical guidance. The FSA are currently looking at ways to improve navigation through the Handbook. The T&C rules follow the career cycle of an individual aimed at achieving competence. Senior Management is best placed to make decisions about competence and there is a great deal of focus on senior management responsibility for the competence of their staff.

Certain products create a higher risk and have more requirements. There is also a greater emphasis on the private rather than corporate customer or market counterparty. The rules are also built on the FSA’s statutory objectives and help to achieve most of them as a competent industry improves market confidence, training is obviously required for staff to fight financial crime and consumer protection is assisted by the provision of competent employees. Even consumer awareness can be improved through the competence of people in the industry who assist FSA in delivering this objective.

In terms of the requirements for general insurance and mortgages a lot of the articles in the press have been at best slightly misleading and at worst totally wrong. Sarah recommends firms go to the FSA website for more accurate information and also to obtain the FSA handouts’Guide to the FSA Handbook for Small Mortgage and Insurance Intermediaries’ Free at or which are free on the website or available for £5 a copy via the Publications Helpline on 0845 608 2372.

Principle 3 is a key focus for training and competence as competent staff help improve the systems and controls firms have in place and assist senior management in meeting this requirement. Senior management decide the direction of the firm. The T&C rules give a flexible format to meet the needs of business. In fact the best approach to T&C is for it to be integrated into the business and fundamental to the way the firm operates rather than an additional requirement from the regulator.

Competence is essentially about knowledge, skills and their application. Examinations or in house testing can help to assess knowledge and skills depending on the job but there must be a focus on the specific job role. For example a scheme that focuses on face-to-face advice where the adviser is telephone based would be inappropriate. It is the way the role is carried out broken down into its key elements, which determines the T&C requirements and thus a deep understanding of the job role is vital.

There are some changes to the T&C Sourcebook coming up:
• on 1 July -. Approved examinations are currently listed in the annexes to the rules but these were never approved by FSA but inherited from previous regulators. With the development of Skills Councils designed to fill the gaps in industry skills, in particular the Financial Services Skills Council will take forward the Examination Review a review of examinations has taken place. The move to appropriate examinations fits with the aim to be non prescriptive and allows flexibility so rules do not have to be amended and consulted upon every time a new examination is introduced, which is not justified by the costs involved. It is sensible to leave senior management to decide on what examinations are appropriate. Through choosing an examination from the list published by the Skills Council should provide a degree of protection for senior management in justifying whether an examination is appropriate. It is possible to stray outside the list but senior management must justify their decision.

• 1 May - Sole traders have had to self supervise but must be signed off as competent at the outset. There is additional guidance around record keeping avoiding bureaucracy to provide clarity so records only need to be kept three years from ceasing the regulated activity rather than on leaving thus allowing for changed roles within organisations. Pension transfer training records still need to be kept indefinitely.

There was an mistakeissue in the drafting of the rules where supervision was required until achieving competence but later the rules require supervision all the time. This will be changed to supervision up to achieving competence followed by ongoing monitoring.

The Commitments to training and competence (TC1) apply to all those associated with a regulated activity. Whether you take that as far as the post room depends on the firm concerned but could cover secretaries who may take calls that relate to complaints requiring knowledge of how to refer a complaint to the right person. TC2 includes all the requirements of TC1 for those engaging in or overseeing the activities listed. For mortgages this would include advising (including lifetime mortgages). For lifetime mortgages the requirements are greater as the risk increases. TC2 will also apply to those who carry out non-advised mortgage sales with scripted questions including those who oversee that activity. Overseas operations are also fully covered if they deal with UK customers. For general insurance defined by FSA as ‘non-investment insurance contracts’ only those advising are covered by TC2.

Howard Davies referred to those firms who could not cope with the T&C requirements as being most likely to encounter compliance failures. In preparing for regulation firms need to ask the fundamental question of who is responsible for T&C, which a lot of firms cannot answer. Everyone in the firm should know. Firms need to decide what competence looks like, as they cannot assess it if they do not know the answer to this. Make sure you check you are doing everything you say you are in the application form and have everything in place. Key performance indicators are useful but it must be possible to assess them and make sure they are communicated to staff. You cannot expect staff to guess what they are.

FSA may develop an employee leaflet, which encompasses general insurance and mortgages much like the current employee leaflet available. There is also a CD Rom planned for around £20 - £25 being developed to reach a wide audience including case studies; links and an audio section available in the Summer, and a series of workshops. The FSA held a Countdown to Mortgage and General Insuance Conference last April called T&C a New Era (not a new Error as was incorrectly quoted on an FSA internal memo!). Otherwise firms can call the Contact Centre on 0845 605525 with any questions they may have.

Between speakers we circulated a ten-point questionnaire to make sure everyone had absorbed what had gone before. Sarah very graciously went through the answers even though she had not seen them beforehand. This was a thought provoking exercise and helped maintain the focus on a hot and sunny afternoon.

Mike Jones went on to give his experience and observations including what not to do. The same formula used in investment business can be transferred at a high level to general insurance or mortgages. The starting point for competence is the ability to perform with the right skills and knowledge i.e. to do the job properly. To arrive at what this means requires sitting down with managers to decide what it is people need to do. There will be key elements in common such as coaching and feedback skills for overseers and supervisors.

Essentially it is all about setting benchmarks without which everything fails. You cannot measure the long jump blind folded and without a tape measure. Firstly you need to ask the existing managers what they think good looks like. You then need to document using SMART principles. Next use the available support and network with HR, Training, external bodies like Financial Services Skill Council, use toolkits and obtain good ideas from publications like Outlook.

It is necessary to establish your KPIs to measure on-the-job performance against quality and activity. You may need to tease this out by probing questions. In the past where Mike was getting nowhere with a telephone help-line manager he asked her to think about being dragged in front of the MD and being told he thought they were a waste of time and should be shut down. She managed to think of justifications for their existence and this produced some valuable information.

Assessments of competence are subjective without benchmarks to provide a range of assessments. Make sure you mirror the culture and strategy of the firm, as it is futile to go in the opposite direction of an organisation. Align your plan with existing performance management to avoid creating duplication. Use the company language. An external consultant once produced a report that would have looked fine in a previous company but made no sense to them.

There needs to be a clear logical format to a scheme following the template set out in the T&C Sourcebook. Think of the end-user who has to implement the scheme and make good use of flow charts and diagrams. The business must be fully engaged and focus groups of end-users can be of enormous value as well as providing buy-in to the design and useful answers. Finally use some sense checking and feedback to fill any gaps identified.

Avoid the bear pits of job descriptions, which may be out of date. Talk to the people concerned, as a lot of job descriptions are full of fluff with no substance. Descriptions must be defined and measurable it is no good having phrases like ‘awareness of compliance issues’, ‘understands process orientation’ or ‘sales experience’ (in a shop or regulated products?), which either do not make sense or are too wide.

Avoid blue skies such as skills and knowledge required for succession planning rather than what they need to know now. Benchmarking must set realistic standards. In one case he came across a team where no one could be signed off as competent but they were all doing a good job. Clearly the benchmarks set were too high. Big is not always beautiful and there are no brownie points for having a huge scheme. It should be simple and clear so staff will buy into it and follow it. When setting standards have no more than two above the line standards. Having five sets from competent to very highly skilled is impossible to quantify with the difference between the lines being minimal.

Communication is the key to launching a scheme to ensure business buy-in. Do not just send it out but launch it face to face. Think of the end user and build in interaction not ‘death by slides’. Make sure you also ‘train the trainer’ in each location, as you do not want to travel around the country only to have to go back and do it all again when people do not understand and bombard you with questions.

The next steps are to provide support and post routine queries to a frequently asked questions page. Make sure you set up local clinics to talk people through the process and use feedback from end users. Make sure you can also deal with changes in business strategy. Above all make sure T&C is a part of the business process and not separate or divorced, as people will not follow it.

We plan to organise another seminar in the autumn possibly around the theme of general insurance (or non investment insurance contracts) regulation and once we get the new website launched we hope to be able to publish future events for all the regions so you can block out your diaries well in advance.

Published: May 2004
By: Anthony Smith

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