In the third part of a regular series, Michael Swann of Deloitte & Touche explains the role of approved persons under FSA rules
British Insurance Brokers' Association (Biba) chief executive Mike Williams set out the challenge for the intermediary market recently when he said: "If you haven't made the grade you won't be getting in. Indeed, if you carry on without authorisation you could be facing a criminal charge."
This challenge was recently posed to all firms currently regulated by the Financial Services Authority (FSA), although these firms also benefited from the grandfathering transition of previous authorisations. For most of those companies, the new regulatory regime brought considerable change to their recruitment, training and appraisal processes.
For the FSA's standards to be maintained, firms are required to confirm their employees and senior executives have:
Fit and proper obligations set out the criteria the FSA considers when assessing the fitness and propriety of an individual who is either applying for, or holding the position of, an approved person. Broadly speaking, the key factors considered when assessing fitness and propriety areas are:
For many in the industry, these key factors are frequently taken for granted, but if called upon to demonstrate them how good are your underlying records?
In February 2002, Deloitte & Touche conducted a survey of FSA regulated firms to assess how firms were managing their requirements in respect of approved persons. Over 90% of the survey participants had reviewed and updated their procedures for recruitment following the introduction of the new rules. More than 80% of the firms surveyed had defined the roles of their approved persons with detailed job profiles and competency standards being set. A similar percentage had introduced rigorous procedures to follow up on any `gaps' during the recruitment interview. Surprisingly, only 65% of respondents had introduced a requirement to take references for the required ten-year employment history the FSA requires.
Once an individual has attained the status of approved person, the challenge that many firms have yet to adequately address is how they monitor compliance effectively and efficiently on an ongoing basis. With this in mind, the contract of employment is also worthy of attention. Some firms have made maintaining the approved person status a condition of employment and grounds for dismissal if the status is lost. Others also make FSA acceptance of a potential employee as a fit and proper person a condition of an offer of employment.
Firms are placing the onus on the individual to advise them of any event that affects their ability to undertake their approved person role - rather than waiting for the annual check to reveal it. A firm must have the training and competency framework in place, against which, at least annually, firms evaluate their staff. This assessment represents a rigorous formal and documented appraisal process, which also seeks to gain assurance that defined competency standards are being maintained.
For an efficient and effective business, the concept of approved persons and the recruitment and vetting processes will already be in place. However, experience has shown that few firms have practically been able to demonstrate that they meet the requirements without additional work. Unless you can show that you "meet the grade," you should not expect your conversion process to FSA regulation to be an easy one.
Michael Swann can be contacted at firstname.lastname@example.org