The importance of having highly skilled individuals in the financial services industry

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Hector Sants, Managing Director, Wholesale & Institutional Markets, FSA
SII Annual Awards Ceremony
6 February 2006

My Lord Mayor, My Lords, Aldermen, Sheriffs, Ladies and Gentlemen. I would like to thank the Securities & Investment Institute for inviting me here today to present their awards. Let me start by congratulating the award winners tonight. I applaud your achievement and your commitment to build on your professional skills. Alas, the hard work you have put in does not end there – as I am sure you have recognised, this is only part of an on-going drive to develop yourself through continuous professional development.

Importance of training from a regulatory standpoint

The UK is one of the biggest and most important financial centres in the world and this is partly attributable to the high standards of competence and professionalism that can be found here. The availability of skilled personnel is cited as “Critically important” in determining business location in this industry . The Corporation of London November 2005 report found that “the availability of high quality personnel is a key factor in maintaining the superiority of London over [other major financial centres]”. The FSA recognises that a key element to promote our competitive advantage is to support and ensure high levels of competence in the financial services industry. By enhancing your own professional standards and by extension, those of the industry that you work in, you are contributing to one of the UK’s key competitive advantages as well as your own personal development.

You may also have noticed that ensuring satisfactory levels of competence is a prerequisite for achieving the FSA’s statutory objectives – consumer protection, market confidence, public awareness and the reduction of financial crime. It is important to have competent people providing financial services to consumers to help build confidence in the financial markets and ultimately protect consumers from unsuitable conduct.

And therein lies the purpose of our Training and Competence regime. This defines the minimum competence standards which we believe firms should achieve, and which ensure that their employees have – and continue to have – the knowledge and skills necessary to carry out their roles. The financial services market is a fast-paced and constantly evolving industry and because of this, staff training is not an optional cost for firms. It is, as it rightfully should be, one of the foundation stones of a firm’s successful strategy.

Individual standpoint – what does this mean for the individual?

From an individual’s standpoint, I’m not going to go to great lengths to convince you that it is important that you, as professional individuals in the financial services market, attain and maintain your professional competence. The fact that you are all here today is testament to your recognition of that. But what I will add is this – while it is the responsibility of your firm’s senior management to ensure that you are sufficiently qualified and competent for your role, you should keep abreast of the changes in your industry and seize the opportunities to develop yourself professionally. You cannot carry out your job properly unless you are competent at it, and you cannot continue to carry out your job properly unless you continue to be competent.

Passing examinations can make a significant contribution to your competence and would certainly make you more marketable, and it is institutes such as the SII that can award you recognised and sought-after qualifications. But passing examinations is only one of many ways of becoming competent. Once you are competent, you should ensure that you keep yourself up-to-date with all aspects of your job. For example, you should always be aware of, and understand regulatory and legal requirements in your area of expertise and learn about the changes in the relevant markets and how they affect you. While your firm will train you up for your role, you should be prepared to go further than that and be looking to learn from all sources of available information.

Firms’ standpoint – what does this mean for firms?

I believe that firms and individuals see the commercial benefit of having an effective training and competence regime. Regardless of the scope of our rules on training and competence, good firms will continue to invest in high quality training and development schemes to ensure that their employees have the necessary skills and knowledge to carry out their roles properly. Ensuring staff are competent and professional underpins the performance of a firm.

As part of the senior management of the FSA, I can tell you that we ourselves make our staff’s training and development a priority. We not only invest in our staff by developing their skills and experience through in-house training programmes and secondments, we also recruit individuals from the industry who can bring their commercial expertise. As the face of financial services is evolving and the financial products are getting more varied and complex, we need to keep up to date and understand the developments in the industry if we are to regulate effectively.

In addition to the commercial benefits of having suitably skilled and knowledgeable staff, there is a regulatory obligation for firms to ensure that their staff are competent. As such, we expect firms to make sure staff are properly and effectively trained.

Our Training and Competence regime benefits not just consumers, but also firms and employees. The regime’s purpose is:

to define the competence standards which firms should achieve;
to ensure staff have – and continue to have – the knowledge and skills necessary to carry out their roles; and
to ensure that consumers are appropriately protected and have confidence in the firms which they deal with.

Our training and competence commitments are a good example of this. They provide high level guidance to Principle 3 for Businesses and provide that a firm’s commitment to training and competence should be that:

employees are competent for their roles;

employees remain competent for their roles;

employees are appropriately supervised;

employees’ competence are regularly reviewed; and

So what does this all mean in light of our proposed changes to the training and competence rules in CP05/10?

CP05/10 ‘Reviewing the FSA Handbook’

In July last year, as part of our initiative to streamline the Handbook and remove rules that are more restrictive than necessary to meet our statutory objectives, we proposed to limit the scope of our training and competence rules to firms whose staff deal only with retail (or private) customers. This means that firms would be given greater flexibility to decide how best to ensure their staff are competent to carry out their roles, where they deal only with wholesale (or non-private) customers. We believe that wholesale firms pose a different level of risk to our objectives, and that wholesale customers can provide market disciplines and incentives in a way that retail customers may be less well equipped to do.

These proposals do not mean that we are no longer concerned with the wholesale industry having suitably trained staff. On the contrary, as I mentioned earlier, we place great importance on highly skilled and well-trained staff in terms of maintaining London’s competitive edge and delivering our statutory objectives. We are, however, enabling senior management to decide the most appropriate way for their staff to become – and continue to be – competent.

We received 150 responses to our Consultation Paper (CP05/10) and we received views both for and against our training and competence proposals. The Policy Statement published on 27 January did not deal with the responses made on these proposals. This is due to the need for the FSA to take into account the possible developments in the European Commission’s measures in implementing the Markets in Financial Instruments Directive (MiFID) and the impact this may have on the training and competence regime.

Our general concern with the latest MiFID measures is the extent to which we can apply our training and competence regime to firms falling within the scope of MiFID. A particular issue is the degree to which the MiFID Level 2 measures are harmonised. We have taken the views expressed by the industry on board and we are looking at the detail of our proposals and the various suggestions made by respondents to ensure that our final policy approach is consistent with MiFID requirements. This means we cannot publish feedback on these issues until the European position has become clearer.

Better regulation – what else are we doing?

There was however a clear message from the respondents to our Consultation Paper – they supported the principle of better regulation. We can thus say that we will be looking to focus more on principles-based regulation, rather than detailed prescriptive rules as we develop our thinking on our follow up work to the CP.

This is an approach to regulation in which the emphasis is on the objective sought and does not deliberately specify how compliance is to be achieved. Along with the emphasis on senior management responsibility and a preference for market-based solutions, this is reflective of our belief that firms have both the knowledge and responsibility to manage their firms better than the FSA could do.

You will see in our Business Plan, which was published last week that we remain committed to delivering on our better regulation commitments.

Conclusion

Hopefully this evening I have highlighted the importance of having highly skilled individuals in the financial services industry and the benefits this brings both on a personal professional level and to the market place as a whole. I would like to continue to see London maintain its standing as being the number one financial capital city in the world. And I am sure that if everyone puts in the effort the award winners have demonstrated, this should be easily achieved. Therefore I would like to end by congratulating the award winners once more and wishing them every success in their careers.