The FCA has provided updated guidance on what it considers to be good practice and poor practice in regards to Conduct Rules training and fitness and propriety assessments.
In July, we reported that the deadline by which firms must have first assessed the fitness and propriety of their Certified Staff will be delayed until 31 March 2021. The FCA is also currently consulting on extending the deadline for the following requirements from 9 December 2020 to 31 March 2021:
- the date the Conduct Rules come into force, for staff who aren't Senior Managers or Certified Persons
- the date by which relevant employees must have received training on the Conduct Rules
- the deadline for submission of information about Directory Persons to the FS Register.
We will provide further information on this when it is available.
So how should fitness and propriety be assessed?
The Certification Regime applies to employees whose role means that they could potentially cause “significant harm to the firm, its customers or the market more generally”. The FCA does not approve these individuals and it is up to the firm to check and certify that they are fit and proper to perform their role on at least an annual basis.
A firm should be able to demonstrate that it is making “regular, thorough and consistent” assessments of the fitness and propriety of all Senior Managers and Certification Staff.
The FCA has now provided clarity on what it considers to be good practice and poor practice regarding fit and proper assessments.
Good practice might include the following:
- Fit and proper checks identify any new issues with staff
- Relevant SMFs actively oversee the fitness and propriety process, ensuring appropriate reporting
- Competence assessments demonstrate that thought has been given to each specific role (including managers)
- Development plans being put in place as a result of fit and proper assessments
- Managers are adequately trained in the assessment process and understand what is expected of them
- The fit and proper process has been introduced and integrated into existing HR/performance management processes
- The use of panels – which include senior managers – to consider marginal cases
- Appropriate criteria and a robust process for identifying certification staff on an ongoing basis
- Regulatory references disclose misconduct/relevant concerns and are produced in a timely manner
On the other hand, bad practice will include such things as:
- Fit and proper checks are a ‘rubber stamp’ exercise, which don’t identify anything new
- A delegated fit and proper process that does not demonstrate adequate oversight and reporting
- A perfunctory competence assessment and/or an assessment that cannot be evidenced as being objective
- No development needs identified
- Poorly trained managers and/or managers that have inadequate guidance as to what is expected of them in terms of fitness and propriety
- Fitness and propriety considered (without review) to already be covered by pre-existing HR/performance management processes and/or no process for dealing with someone who fails the assessment
- Process for considering marginal cases either non-existent or rarely used
- Ad hoc and/or burdensome manual process used to identify certification staff
- Regulatory references that fail to provide the necessary information and/or are not available promptly
Smaller firms may find they need to take a proportionate approach to the above, but should still give consideration to these points and the intention behind them.
Only individuals who meet the criteria for one or more of the Certification Functions come within the Certification Regime. However, the FCA states that, if firms want to extend similar fit and proper assessments to individuals who are outside the Certification Regime on a voluntary basis, they can do so.
What should Conduct Rules training look like?
The Conduct Rules “set minimum standards of individual behaviour in financial services”. They apply to a broad range of staff, with the aim of improving individual accountability and awareness of personal conduct issues across firms.
When training staff on the Conduct Rules, good practice might include things such as:
- Relevant SMF able to demonstrate appropriate involvement/oversight of training
- Interactive training that uses realistic scenarios
- Examples/scenarios show how the rules apply to different types of role
- The involvement of line managers in training
- Training is regularly reinforced; forms part of onboarding process
- The effectiveness of training is assessed
- Training is put in the context of the overall regime
- SM&CR and Conduct Rules are presented as a ‘step change’ in regulatory expectations
- Conduct is linked to fitness and propriety and performance assessments
Poor practice, however, will include:
- Relevant SMF has limited knowledge of training approach and/or has delegated with limited oversight
- Training is simply, computer-based only and not tailored to role
- Training that only gives obvious examples of breaches
- Training is delivered by HR, compliance or the project team – with no line management involvement
- Training is a one-off event and/or is not built into onboarding process
- The effectiveness of training is not measured
- Training is not put in the context of the overall regime
- SM&CR and Conduct Rules are presented as ‘nothing new’
- Conduct is not linked to fitness and propriety and performance assessments
The above examples outline the FCA’s expectations in regards to Conduct Rules training – how it should look and the pitfalls to be avoided.
If you have any questions regarding the above, please contact your Business Manager or the team at RWA via 01604 709509 or firstname.lastname@example.org.