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The FSA sets new standards of professionalism

31 January 2011

The FSA's Policy Statement on professionalism (part of the RDR) was published on 20 January 2011.

From January 2013, the FSA will start collecting information about individual advisers, such as the qualifications they hold and which accredited body they use. The first of the accompanying professionalism rules will come into force in July 2011. The rules will impose a significant additional self-reporting burden because firms will be obliged to inform the FSA if any of their advisers fall below its competence or ethical standards.

The FSA says: "This information will underpin an adviser database that, with additional insights such as alerts from firms, accredited bodies, whistle blowing, and other data, will enable us to identify the highest risk advisers.  We will manage and filter this information for action by a new individual adviser supervisory function, which will operate closely with firm supervisors.  We expect to alert both firms and accredited bodies to issues we identify with individual advisers. "

A key new standard is that all retail investment intermediaries must carry a Statement of Professional Standing (SPS). The purpose of the SPS is to comfort customers that their advisers are suitably qualified, have up to date knowledge and that they subscribe to a code of ethics. It will be the responsibility of the FSA accredited bodies to issue individuals with an SPS and to ensure that advisers do not have any gaps in their knowledge and that they hold an appropriate QCF Level 4 qualification.

To qualify to issue SPSs, an accredited body must satisfy the following criteria:

    • act in the public interest and further the development of the profession;
    • carry out effective verification services;
    • have appropriate systems and controls in place and provide evidence of continuing effectiveness; and
  • cooperate with the FSA on an ongoing basis.

If an adviser does not reach and maintain the required standards their SPS can be removed.  The consequences of this could be a fine, a suspension or - in extreme circumstances - removal of their approved person status. It is suggested that the FSA will need to agree an action plan before they agree to the reinstatement of an SPS.

Under the new rules there will be a requirement that advisers complete a minimum of 35 hours of continued professional development (CPD) each year, and although some of this can be reading, 21 hours must be structured (e.g. courses, lectures, seminars or workshops). It had previously been indicated that the FSA were going to raise the 10% CPD sample check requirement of accredited bodies for post-2012 supervision, however it is clear that this is not going to be put into action.

It is anticipated that the policy changes, as a result of the RDR, will result in an overall cost to advisers of between £155m and £225m.  The FSA believe, however, that each SPS can be delivered for no more than £175.

The Policy Statement makes it clear that the FSA will build an adviser database, from data collected from firms, to help identify the highest risk individuals.  This will be managed and filtered by a new individual adviser supervisory function.

Sheila Nicoll, the FSA's director of conduct policy, explained in the FSA press release:

"Rebuilding trust between customer and adviser is absolutely vital for the future prosperity of the retail investment market….In conjunction with the adviser charging rules announced earlier last year, today's policy statement gives advisers the certainty they need to plan ahead for the RDR, whether that involves establishing a new business model based on adviser charging, working towards new qualifications, or filling gaps with CPD. Now is the time to prepare.

"When advisers open for business in January 2013, a Statement of Professional Standing will be a vital indicator for customers that the person they are dealing with is subscribing to a code of ethics, has up-to-date knowledge, and is appropriately qualified."

It is clear from the Policy Statement and the FSA's speeches that, as momentum builds towards the introduction of the RDR, it will be the firms and bodies who are able to put their systems in place sooner rather than later that will find it easier to ensure the standards of professionalism are engrained by the time the new rules come into force.

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