Knowledge, Ability and Good Repute (SYSC 28) | FCA Handbook

This is a new section following the IDD which:
1. Introduces additional knowledge and ability requirements including minimum annual CPD
2. Moves previous Good Repute requirements from the MIPRU Sourcebook with some enhancement

Knowledge & Ability Requirements (SYSC 28.2)

These rules supplement the “Competent Employees” rule (SYSC 5.1) and require firms to

(1) Ensure that each relevant employee possesses appropriate knowledge and ability in order to complete their tasks and perform their duties adequately.

(2) Ensure that each relevant employee complies with continued professional training and development requirements in order to maintain an adequate level of performance corresponding to the role they perform and the relevant market.

(3) Ensure that each relevant employee completes a minimum of 15 hours of professional training or development in each 12 month period.

For the purposes of (3), a firm must take into account the:
(a) role and activity carried out by the relevant employee within the firm; and
(b) type of distribution and the nature of the products sold.

“Relevant employees” are employees or other persons:
(1) directly involved in the carrying on of the firm’s insurance distribution activities; or
(2) within the management structure responsible for the firm’s insurance distribution activities; or
(3) responsible for the supervision of a relevant employee acting in the capacity as set out in (1).

It is not restricted to individuals working under a contract of employment and includes Appointed Representatives and staff whose services are put at a Firm’s disposal by a Third Party.

In terms of the type of CPD which relevant employees are required to complete, a further rule states:

A firm must, including in relation to the relevant employee, demonstrate compliance with the following professional knowledge and competence requirements:

For general insurance contracts:
(a) minimum necessary knowledge of terms and conditions of policies offered, including ancillary risks covered by such policies;
(b) minimum necessary knowledge of applicable laws governing the distribution of insurance products, such as consumer protection law, relevant tax law and relevant social and labour law;
(c) minimum necessary knowledge of claims handling;
(d) minimum necessary knowledge of complaints handling;
(e) minimum necessary knowledge of assessing customer needs;
(f) minimum necessary knowledge of the insurance market;
(g) minimum necessary knowledge of business ethics standards;
(h) minimum necessary financial competence;

For long-term insurance contracts
(a) minimum necessary knowledge of policies including the terms, conditions, the guaranteed benefits and, where applicable, ancillary risks;
(b) minimum necessary knowledge of organisation and benefits guaranteed by the pension system of the relevant Member State;
(c) knowledge of applicable insurance contract law, consumer protection law, data protection law, anti-money laundering law and, where applicable, relevant tax law and relevant social and labour law;
(d) minimum necessary knowledge of insurance and other relevant financial services markets;
(e) minimum necessary knowledge of complaints handling;
(f) minimum necessary knowledge of assessing consumer needs;
(g) conflict of interest management;
(h) minimum necessary knowledge of business ethics standards; and
(i) minimum necessary financial competence.

Training and development can encompass various types of facilitated learning opportunities including courses, e-learning and mentoring.

The rules do not specify a starting date for the 12 month period. Firms can use their accounting reference date if they wish. However, firms should ensure that measures are in place to comply with the IDD requirements from the IDD Application Date which is the 1st October 2018. This may mean doing a pro-rata amount of CPD in the first period after implementation.

The FCA do not intend to prescribe a mix of structured and unstructured CPD. Firms should consider what is most appropriate to ensure that their employees have the required knowledge and competence.

Good Repute (SYSC 28.3)

A firm must ensure that all the persons in its management structure and any staff directly involved in insurance distribution activities are of good repute.

This includes but is not limited to those persons:
(1) that are directly involved in insurance distribution activities; or
(2) within the management structure responsible for insurance distribution activities; or
(3) within the management structure responsible for any staff directly involved in insurance distribution activities.

An IDD ancillary insurance intermediary must ensure that natural persons working in the firm, responsible for ancillary insurance distribution activities, are of good repute.

In considering a person’s repute the firm must at a minimum ensure that the person:

(1) has a clean criminal record or any other national equivalent in relation to serious criminal offences linked to crimes against property or other crimes related to financial activities; and
(2) has not previously been declared bankrupt unless they have been rehabilitated in accordance with national law.

In the United Kingdom the following persons will be considered to have been rehabilitated:
(a) in relation to a serious criminal offence, where the conviction is considered ‘spent’ under the Rehabilitation of Offenders Act 1974;
(b) in relation to bankruptcy, where the bankruptcy has been discharged.

References to “serious criminal offences” are not restricted to offences considered to have been committed in or under the law of the United Kingdom.

A firm should give particular consideration to offences of dishonesty, fraud, financial crime or other offences under legislation relating to banking and financial services, companies, insurance and consumer protection.

A firm’s systems and controls should enable it to satisfy itself of the suitability of anyone who acts for it. This includes, among other things, the assessment of an individual’s honesty.

The main differences from the previous MIPRU rules are that:

1. Firms must now “ensure” that relevant staff are of good repute. Previously it said “establish on reasonable grounds”.

2. The criteria for considering “good repute” set out above are now to be regarded as a “minimum” which a firm should ensure.

In PS17/27 the FCA also says:

1. The good repute requirement creates a continuous obligation, although the requirements do not prescribe the timing or frequency of the checks. Firms would need to perform the checks ahead of a staff member becoming involved in the firm’s insurance distribution activities.

2. The application of the good repute requirements remains unchanged. ARs that are carrying on insurance distribution activities are within the scope of IDD and the good repute requirements apply to them. Firms should, therefore, already be ensuring that ARs comply with the existing good repute requirements.

The FCA do not comment in the PS on whether criminal records checks should be conducted for all relevant employees but the rules require firms to “ensure” that staff have a) not been convicted of serious offences relating to property or other crimes related to financial activities, and b) not been adjudged bankrupt.

Record-keeping Requirements (SYSC 28.4)

New record-keeping requirements are introduced by the IDD for Knowledge & Ability and Good Repute.

Previously under MIPRU there were no specific record-keeping requirements for Good Repute. Under TC (Training & Competence) there was a requirement to make appropriate records and keep them for 3 years after a person stops carrying out an activity regulated by TC (essentially advising).

The new rules are that a firm must:

(1) establish, maintain and keep appropriate records to demonstrate compliance with this chapter (SYSC 28); and

(2) be in a position to provide to the FCA, on request, the name of the person responsible for the record-keeping requirement

in (1) a firm must:

(1) make an up-to-date record of the continued professional training or development completed by each relevant employee in each 12 month period;

(2) retain that record for not less than 3 years after the relevant employee stops carrying on the activity; and

(3) be in a position to provide any version of the record to the FCA on request.

A firm must not prevent a relevant employee from obtaining a copy of the records relating to that employee which are maintained by the firm.