Our training and competence regime supports consumers by making sure the financial services workforce is appropriately qualified and well regulated.
The regime comprises of:
- a high-level competence requirement (the 'competent employees rule') that applies to individuals engaged in the regulated activity in all UK authorised firms (including wholesale firms) as set out in our Senior Management Arrangements, Systems sourcebook (SYSC)
- more detailed requirements for certain retail activities, including the need to attain a qualification where relevant, as introduced below and set out in our Training and Competence sourcebook (TC)
The rules and guidance in TC include:
- assessing competence, maintaining competence and training
- requirements for supervision and supervisors
- qualification requirements before starting regulated activities
- exemptions from appropriate qualification requirements
- specific obligations in respect of retail investment advisers
- record keeping
- specific knowledge and competence requirements relating to EU Directives
If the TC does not apply – for example, if firms only carry out wholesale activities – then you may wish to refer to the TC when considering how to meet the high-level requirements in the SYSC.
Firms decide which methods to use when assessing employee competence. We define competence as having the skills, knowledge and expertise needed to discharge the responsibilities of an employee’s role.
Competence includes achieving a good standard of ethical behaviour. It is not just a question of having the appropriate qualification and reading the Statements of Principle for Approved Persons (APER) or the Code of Conduct (COCON) (as applicable). Firms need procedures in place with clear criteria for individuals to be assessed as competent, so all parties involved understand when competence has been reached.
Maintaining competence and training needs
Your firm must review employee competence and training needs regularly. You must consider changes in the marketplace and products, regulation and legislation. You must also look at the skills, expertise, technical knowledge and behaviour of your employees in practice.
Firms should make sure appropriate training is provided so employees remain competent. You will also need to monitor and assess regularly the training’s effectiveness to make sure it meets objectives.
Level of supervision
Firms should make sure employees are always supervised. How closely the individual is supervised will depend on their experience and whether they have been assessed as competent. The level and intensity of supervision should be significantly greater before competence is achieved than afterwards. We expect firms to have clear criteria and procedures to identify the specific point at which the individual becomes competent so they can prove when and why a reduced level of supervision is warranted. We do not expect supervision to only involve file checking.
Supervisors will need to pass an appropriate qualification in TC, if they supervise an employee who advises retail clients on retail investment products (life policies for example) or P2P agreements where that employee has not yet been assessed as competent. We also expect supervisors should have the appropriate technical knowledge and coaching and assessment skills to be a supervisor.
There is no specific requirement for supervisors to pass an appropriate qualification where they are supervising people carrying on other activities in the TC. They should have the technical knowledge and coaching and assessing skills to be a competent supervisor and assessor. Firms should also consider whether they wish their supervisors to hold an appropriate qualification. Ultimately, firms should be able to explain to us their decision if they decide the qualification is unnecessary.
Qualification requirements before starting regulated activities
For regulated activities within TC certain qualification requirements exist. If you are doing an activity or providing a service listed in TC Appendix 1, you will need to check if there is an appropriate qualification requirement. The table of appropriate qualifications corresponding to the regulated activities subject to qualification requirements in TC Appendix 1 is available in TC Appendix 4. These only apply to people dealing with retail clients, customers or consumers.
You will need to compare the job role to the activities listed to find what is relevant. For example, if you are advising on investments, including regulated collective investment schemes, you will need to look at 'advising on retail investment products', or if you are advising on shares you must look at 'advising on securities'. The job you do – rather than your job title – determines the relevant activity. Some jobs cross over multiple activities, so you must hold qualifications for each listed activity.
Time limits for attaining an appropriate qualification exist. Generally, you must complete a qualification within 48 months of starting the regulated activity.
As you will see in our table of appropriate qualifications (at TC Appendix 4), several qualifications can be appropriate for an activity. We cannot recommend which qualification you should complete. We can only tell you which qualifications meet our requirements for specific activities.
The choice of qualification is often made by the regulated firm depending on the individuals role. If you are already working in the industry and do not know which provider to study with, then speak to others in your firm. If you intend to join the industry, then you need to consider which type of firm you want to work for and learn more information from the qualification provider they use. It may be useful to contact the accredited bodies.
If you have an unlisted qualification and wish to add it, please ask your provider to contact us.
If you have a qualification and wish to switch it to a different one, you will need to speak to the qualification provider about how you can transfer credits or apply for exemptions.
Your qualification remains valid, however long ago you received it. Nevertheless, firms should make sure their employees are competent. This may include asking staff to re-take qualifications.
Trainees and new recruits
Different rules exist for individuals who are new to the industry or may not hold appropriate qualifications. As a minimum individuals will need to hold an appropriate regulatory module for each activity, for which there is a qualification requirement in TC Appendix 1, before the individual carries on the activity.
Certain activities cannot be carried on until the individual has obtained the full qualification (each module of the appropriate qualification):
- advising on and dealing in securities that are not stakeholder pension schemes or broker funds (activity 12 in TC Appendix 1)
- advising on and dealing in derivatives (activity 13 in TC Appendix 1)
- acting as a broker fund adviser (activity 10 in TC Appendix 1)
- advising on syndicate participation at Lloyd's (activity 9 in TC Appendix 1)
- acting as a pension transfer specialist (activity 11 in TC Appendix 1)
In all situations the individual must be appropriately supervised.
Exemptions from appropriate qualification requirements
Waivers and modifications
Firms can apply for waivers and modifications to vary Handbook rules and alter their compliance obligations. For more information please read our waiver and modification pages.
We will consider granting a waiver if you can demonstrate that:
- complying with the rule would be unduly burdensome or would not achieve its purpose
- the waiver would not adversely affect any of our operational objectives:
- secure an appropriate degree of protection for consumers
- protect and enhance the integrity of the UK financial system, and
- promote effective competition in the interests of consumers
An exemption from the appropriate qualification requirements (TC 2.1.9) may be available under our rules for individuals with recent overseas experience. It says they do not have to pass the technical module(s) of an appropriate qualification if they:
- have 3 years up-to-date relevant experience gained overseas
- have not previously been subject to the TC qualification requirements for the activity in question
An individual who satisfies these conditions will only have to pass the relevant regulatory module of an appropriate qualification.
The exemption is not available for the following specified activities:
- advising on investments (except P2P agreements) which are retail investment products, if that advice is given to retail clients (activity 4 in TC Appendix 1) or
- advising on P2P agreements, if that advice is given to retail clients (activity 9A in TC Appendix 1) or
- the activity of a broker fund adviser (activity 10 in TC Appendix 1) or
- advising on syndicate participation at Lloyd's (activity 9 in TC Appendix 1) or
- the activity of a pension transfer specialist (activity 11 in TC Appendix 1)
Retail investment advisers
Where a firm employs a 'retail investment adviser' (RIA) there are specific requirements set out in TC that should be considered. These include requirements in respect of:
- continuous professional development (CPD)
- declarations in respect of CPD and conduct requirements
- appropriate qualifications
- independent verification in the form of a statement of professional standing
- notification requirements
You should keep records on anything that relates to TC compliance. You need to keep records of staff recruitment, training, competence assessment, staff supervision and details of appropriate qualifications for any activity in the TC.
You must keep records for various lengths of time depending on the business to which it relates. For MiFID business, records must be kept for at least 5 years after an individual has stopped carrying on an activity listed within the TC. For non-MiFID business, you must keep records for at least 3 years after stopping the activity. If your firm is a pension transfer specialist, the records must be kept indefinitely.
Specific knowledge and competence requirements relating to EU Directives
Firms should note that the training and competence regime has been amended to take into account changes required by the recast Markets in Financial Instruments Directive (MiFID II) (Directive 2014/65/EU). Further information about these changes can be found in chapter 18 of the Markets in Financial Instruments Directive II Implementation – Policy Statement 2.
In accordance with the requirements of MiFID II the necessary changes have now been transposed into UK law. However, the MiFID II related changes will not take effect until 3 January 2018. In the interim period, the existing training and competence requirements in relation to regulated activities falling within the scope of MiFID will continue to apply.
ESMA guidelines for the assessment of knowledge and competence
ESMA has issued guidelines for MiFID investment firms specifying the characteristics and criteria for the assessment of knowledge and competence when giving investment advice or providing information about financial instruments, investment services or ancillary services to clients on behalf of the investment firm.
The relevant rules in the sourcebook specifying the application and obligation are SYSC 5.1.5AAR and SYSC 5.1.1ABR. We have also made changes to the TC sourcebook arising from our decision to comply with ESMA’s MIFID II guidelines.
ESMA guidelines summary
The ESMA guidelines establish a minimum standard, which we are applying, for the assessment of knowledge and competence of relevant individuals providing a specified service. The guidelines provide in summary, amongst other matters that firms must ensure:
- that relevant individuals providing the specified service, which includes those who are responsible for the supervision of relevant individuals, possess the necessary knowledge and appropriate competence required by the ESMA guidelines
- that relevant individuals who have not acquired the necessary knowledge or competence do not provide those relevant services under supervision for a period exceeding 4 years
- that relevant individuals have obtained appropriate experience which means that the relevant individual has successfully demonstrated the ability to carry on the activities through previous work experience. This work must have been performed, on a full-time equivalent basis, for a minimum period of 6 months
- the proportionate application of knowledge and competence requirements ensuring relevant individuals have the necessary levels of knowledge and competence to fulfil their obligations, reflecting the scope and degree of the relevant services provided
- that the level and intensity of knowledge and competence expected for those providing a personal recommendation should be of a higher standard than those giving information
- that relevant individuals obtain an appropriate qualification which means a qualification or other test or training course that meet the criteria set out by the ESMA guidelines.
Characteristics and criteria of an appropriate qualification
We do not list specific appropriate qualifications that meet the criteria and characteristics of the ESMA guidelines. The review of an appropriate qualification can be carried out by the firm or an external body.
The criteria for knowledge and competence for staff (relevant individuals) giving information are set out in the ESMA guidelines at paragraph 17. Firms should ensure that staff giving information about investment products, investment services or ancillary services that are available through the firm have the necessary knowledge and competence to:
- understand the key characteristics, risk and features of those investment products available through the firm, including any general tax implications and costs to be incurred by the client in the context of transactions. Particular care should be taken when giving information with respect to products characterised by higher levels of complexity;
- understand the total amount of costs and charges to be incurred by the client in the context of transactions in an investment product, or investment services or ancillary services;
- understand the characteristics and scope of investment services or ancillary services;
- understand how financial markets function and how they affect the value and pricing of investment products on which they provide information to clients;
- understand the impact of economic figures, national/regional/global events on markets and on the value of investment products on which they provide information;
- understand the difference between past performance and future performance scenarios as well as the limits of predictive forecasting;
- understand issues relating to market abuse and anti-money laundering;
- assess data relevant to the investment products on which they provide information to clients such as Key Investor Information Documents, prospectuses, financial statements, or financial data;
- understand specific market structures for the investment products on which they provide information to clients and, where relevant, their trading venues or the existence of any secondary markets;
- have a basic knowledge of valuation principles for the type of investment products in relation to which the information is provided.
Criteria for knowledge and competence for staff (relevant individuals) giving investment advice are set out in the ESMA guidelines at paragraph 18. Firms should ensure that staff giving investment advice have the necessary knowledge and competence to:
- understand the key characteristics, risk and features of the investment products being offered or recommended, including any general tax implications to be incurred by the client in the context of transactions. Particular care should be taken when providing advice with respect to products characterised by higher levels of complexity
- understand the total costs and charges to be incurred by the client in the context of the type of investment product being offered or recommended and the costs related to the provision of the advice and any other related services being provided
- fulfil the obligations required by firms in relation the suitability requirements including the obligations as set out in the Guidelines on certain aspects of the MiFID suitability requirements
- understand how the type of investment product provided by the firm may not be suitable for the client, having assessed the relevant information provided by the client against potential changes that may have occurred since the relevant information was gathered
- understand how financial markets function and how they affect the value and pricing investment products offered or recommended to clients
- understand the impact of economic figures, national/regional/global events on markets and on the value of investment products being offered or recommended to clients
- understand the difference between past performance and future performance scenarios as well as the limits of predictive forecasting
- understand issues relating to market abuse and anti-money laundering
- assess data relevant to the type investment products offered or recommended to clients such as Key Investor Information Documents, prospectuses, financial statements, or financial data
- understand specific market structures for the type investment products offered or recommended to clients and where relevant their trading venues or the existence of any secondary markets
- have a basic knowledge of valuation principles for the type of investment products offered or recommended to clients
- understand the fundamentals of managing a portfolio, including being able to understand the implications of diversification regarding individual investment alternatives
The characteristics that an appropriate qualification needs to meet in order to meet the criteria, set out in paragraphs 13 to 15 are:
The level and intensity of knowledge and competence expected for those providing investment advice should be of a higher standard than those that only give information on investment products and services. Firms should ensure that staff providing relevant services possess the necessary knowledge and competence to meet relevant regulatory and legal requirements and business ethics standards.
Firms should ensure that staff know, understand and apply firm’s internal policies and procedures designed to ensure compliance with MiFID II. In order to ensure a proportionate application of knowledge and competence requirements, firms should ensure that staff have the necessary levels of knowledge and competence to fulfil their obligations, reflecting the scope and degree of the relevant services provided.
Recruiting, training and supervising staff
When considering how to comply with the knowledge and competence requirements in the ESMA guidelines, including whether the appropriate qualification meets the ESMA characteristics and criteria, firms can consider the good practice guidance in recruiting, training and supervising staff on the FCA website, and also the handbook guidance in TC relating to continuing professional development.
Knowledge and competence requirements before starting Mortgage Credit Directive (MCD) credit agreement activities
The MCD sets minimum standards of professionalism for mortgage lenders and intermediaries, those involved in the manufacture of mortgages and those involved in granting loans. The Directive lists nine areas of appropriate knowledge (including the loan products offered, the property sales process, valuations, ethics and assessing affordability).
Our mortgage rules in TC require the great majority of sellers to have an appropriate qualification. We consider that if you have such a qualification you will meet the MCD standard.
However, the MCD standards also apply to some staff who are not sellers, and so who are not required to have an appropriate qualification. These staff, who are involved in the manufacture of mortgages or granting credit, will need to meet the minimum MCD requirements that we have added into TC (see TC 2.1).