If someone in your company has a dialogue with a client by email, telephone or letter, would you know what was said or agreed? Petrina Oxshott poses the questions that compliance officers will be asking

At RWA, in common with other compliance specialists, we have a little black book of horror stories which have been gathered over the years. Flipping through them creates mixed emotions (not knowing whether to laugh or cry) but there are very good reasons for this record to exist.

In the first place, most practitioners are not exposed to serial under-performance in the context of negligence and it is something that may only arise on a handful of occasions in the working life of a professional adviser (if at all). It is necessary to keep a good record of what can go wrong so that the examples of mistakes and incompetence can be given in assessment and training.

On the other hand there are many things that are being done which are just a disaster waiting to happen, so once again the good example of bad practice can help practitioners identify aspects of their own businesses that might need to be addressed.

Here is an example of an exchange of emails:

Client: That proposal you sent me has a question about heating appliances... we use paraffin heaters at present, does that matter?

Broker: Insurers do not like paraffin heaters.

Client: It is only temporary until we install a proper heating system.

Broker: They will only want to charge more.....leave it off the proposal.

You might well ask whether this sort of thing actually happens. Unfortunately, the answer is a resounding yes. There are many such examples of such crass negligence, but to justify our positions as compliant individuals, readers need to be able to know how to identify if it is going on in their firms.

Perhaps in looking at a simple example such as this, it becomes clearer to us why the FSA will seek evidence of a system that stops it happening in the first place. But if it is going to happen then we need a system that identifies such shortcomings before disaster strikes . In the case above there was a claim and the insurer avoided it for non-disclosure.

How do you think you would spot this in your own firm within a reasonable period?

Clearly ,the answer is through supervision and monitoring. But imagine if this dialogue took place in other ways - letter, telephone, face-to-face - consider how you might set up a procedure to identify similar dialogues.

Perhaps the first thing you should do is insist that all such dialogues are committed to writing, dated and signed.

Now you need to set up a monitoring procedure that satisfies the folowing:

  • Who does the checking

  • What does one look for

  • How often

  • How are the results recorded

  • Who monitors the results and checks that the procedure is being complied with.

    The first part of today's exercise is to take a blank sheet of paper and consider just one aspect of giving advice, namely, gathering information.

    Set down a procedure of checking this function within your firm and concentrate on the middle three bullet points above. As a hint, it will all follow from identifying what you are looking for and, in principle, you want to avoid:

  • A surprise when a claim arises

  • Any unreasonable stress for the customer

  • Being unable to show a third party what you have done or what went on between your firm and another party.

    You may be able to develop a system that identifies a problem, but you also need to be able to identify why it occurred in the first place.

    So let us move on to the second part of the exercise. Assuming that we have developed a system to check what goes on and that having chosen a reasonable interval between checks to minimise the risk of a problem occurring, what do we do if we spot evidence of incompetence as highlighted above.

    Clearly, we have identified a training need (does this individual know anything about the duty of disclosure?), but if we are running an FSA-compliant business we need to go a step further and identify how this incompetent person got into a position of giving advice.

    What could have gone wrong? This is one of the reasons that the FSA is keen on laid down procedures. In this case no harm was done but supposing there had been a £10m loss which the insurer had repudiated?

    Recruitment check

    We need to be able to track this individual's progress through the firm right back to recruitment if necessary.

    Is it possible this person lied about experience or qualifications?

    Was a knowledge assessment fudged?

    Was the competence assessment system generally flawed?

    Should this person have been dealing with a customer without constant and direct supervision?

    Looking again at your sheet of paper, pretend that this had happened at your own firm and treat this as a risk management exercise.

    Is it possible that this could have happened in your firm (be brutally honest with yourselves) and consider what procedures you would put in place to make reasonably sure that it could not happen again.

    Finally, I would like you to go through another case, without comment from me.

    On checking files we found that three staff arranging household insurance (often for the directors and partners of important commercial clients) had, for the last few years been adding buildings insurance to the contents insurance for flats owned by customers.

    It was spotted when a compliance auditor noticed that there was a buildings item on a 12th storey flat in a London high rise. There was no other detail of any other insurance on file.

    The exercise is the same. Could it happen in your firm and consider that the error might not be inadvertent. How could it happen and how do you stop it.

    So you see, the black book of horror stories does have its place, and if you want to prepare yourself for next week's CPD, imagine that these scenarios had occurred in your firm and consider what action you would take.

  • Petrina Oxshott is a compliance specialist

    Using this CPD page

    For the vast majority of practitioners and indeed support and supervisory staff in our industry, CPD is about regular learning and study that is planned, recorded, timed and evaluated.

    If you are a member of a professional body with a CPD requirement then there will be certain rules regarding the quality and nature of study material, and the way in which it is recorded.

    For staff of GISC members this means recording on your individual training file what the learning was, who provided it and when.

    It might be structured, such as a course, a learning programme or exam study. But it can be unstructured. This form of study encompasses reading the trade press, technical material or taking part in activities to support your professional body.

    Some CPD requirements are points related (a little antiquated) and others require a time value to be allocated.

    For example, it might take one hour to read Insurance Times each week. Most of that could be put as a time value but, in reality, perhaps only an half hour was devoted to learning something. The rule is to be honest with yourself and record the time that is relevant.

    Always take time to make a note of what you felt you gained from the activity. This is useful information for anyone else considering the same activity.

    In response to the popularity of our CPD programme each week's CPD page can now be downloaded from our website.

    We will be preparing a binder for you to keep these in alongside the results of the exercises.

    To download a PDF of this article as it appears in the magazine click here .

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