FCA Handbook SYSC – Knowledge and Ability – CPD Requirements

This is an interpretation of the FCA Rules and should not be regarded as FCA Guidance.

Which staff are caught?

In deciding which employees are caught by the new CPD requirement there are two fundamental questions:

1. What is meant by “insurance distribution activities”?
2. What is meant by “directly involved in the carrying on of the firm’s insurance distribution activities”?

Q1 – Insurance distribution activity

This is a defined Glossary term (replacing the previous Insurance Mediation Activity) and lists the Permissions under the Regulated Activities Order (RAO) granted to authorised Insurance Intermediaries. Further guidance on the scope of each Permission is contained in PERG 5. A summary of the relevant Permissions follows:-

Arranging (bringing about deals in investments)

Basically making arrangements which bring about a contract of insurance. “In the FCA’s view, a person would bring about a contract of insurance if his involvement in the chain of events leading to the contract of insurance were important enough that, without it, there would be no policy”.

Making arrangements with a view to transactions in investments

The difference from the previous Permission is that this activity does not have to result in an actual contract of insurance being taken out and could include some forms of introducing as well as providing quotations.

Advising on investments

Basically advising on contracts of insurance. The advice must:-

1) relate to a particular contract of insurance
2) be “advice” not just information
3) relate to the merits of buying a contract of insurance.

Provision of advice may include the communication of a financial promotion.

Information may take on the nature of advice if the circumstances in which it is provided give it the force of a recommendation.

Assisting in the administration and performance of a contract of insurance

Both elements – administration and performance – need to apply before the Permission is necessary. The example usually given is assisting an Insured to negotiate settlement of a claim with Insurers.

Q2 – Directly involved in the carrying on of the firm’s insurance distribution activities.

There is no guidance on this other than the FCA’s comments in CP17/7:

“We propose to apply the knowledge and competence requirements only to those employees directly involved in insurance distribution. This includes relevant people within the management structure with responsibility for insurance distribution (for example, product or sales managers). The requirements will not apply to employees in ancillary roles such as HR, facilities management and IT.”

The reference to “Product and Sales Managers” suggests that the rule does not only apply to customer-facing staff but firms will have to make their own interpretation. Some categories of staff e.g. IT, HR, Accounts, etc. can probably be safely excluded but will of course still be subject to a basic SYSC 5.1 competency rule without requiring minimum CPD.

Impact on Typical Insurance Intermediaries

Staff likely to be caught by the new CPD rules are:-

a) Customer-facing offices/Branches

All staff (excluding any that are purely administration)

b) Appointed Representatives

As above

c) Back-office/Head Office

Product/Schemes Development

All staff

Training and Support

All staff

Marketing/Advertising

Most staff – role could constitute making arrangements and/or advising. Staff involved in market research, web optimisation, etc. are probably out of scope.

Compliance

All staff. Influential on the sales process.

Agency

Probably out of scope.

Accounts/Premium Finance

Out of scope

HR/Premises

Out of scope

IT Support

Likely to be out of scope if just providing technical support.

Directors/Partners

All staff except possibly Non-Execs. Directors are included because managers responsible for insurance distribution activities usually report to them so they are responsible for their supervision. Also they could be deemed collectively as responsible for the firm’s insurance distribution activities.

d) Wholesalers

All staff except purely administrative.

Wholesalers do not have direct contact with end Insureds but are nevertheless carrying out insurance distribution activity – arranging or making arrangements with a view, etc.

Form of CPD

For employees caught by the new rule the form of CPD required does appear to be prescriptive. However, the key expression is “minimum necessary knowledge”. This will vary depending on the job and as an example, for policy terms and conditions and assessing customer needs, Directors and some back-office staff may only need an appreciation whereas customer-facing staff will need an in-depth knowledge. The FCA also said in CP17/7:-

“We propose to issue guidance that the format and content of the CPD can be modulated according to the nature and complexity of the employee’s role”. (They have not done so yet)

Tailored training/CPD programmes will therefore be required.