Firms will pay the penalty if HR fails new FSA rules

Failure to comply with new recruitment and development regulations can land
finance firms in hot water, yet many HR departments have yet to review their
responsibilities, reports Ben Willmott

Employers in the finance sector must comply with stringent new regulations
on staff recruitment and development introduced at the beginning of this month
– or risk being fined or named and shamed.

Despite the potential penalties, many HR professionals are unaware of their
responsibilities under the Financial Services and Markets Act 2000, according
to its regulator, the Financial Services Authority.

The Act will apply to more than 10,000 firms and has been introduced to
improve standards of financial advice. The FSA’s training and competence rules,
which apply to all members of a company from the chief executive to most junior
staff, specify that employees must be competent, supervised and regularly

"There is anecdotal evidence suggesting many HR departments don’t know
that these rules affect them," said David Jackman, head of industry
training for the FSA. "There needs to be an effective partnership between
compliance, the line management and HR to make these requirements work.

"We find it is often compliance officers who attend our workshops and
roadshows and we are therefore not particularly confident that HR departments
are being fully involved.

"The underlying basis is identifying, developing and demonstrating
groups of competencies and this surely is the expertise of the HR area,"
said Jackman.

The Employers Forum on Statute and Practices also stresses the vital role HR
must play in helping employers comply with the Act.

Robbie Gilbert, chief executive of the EFSP, said, "This is a major
piece of legislation which affects more than 10,500 companies. HR departments
have an important role to play in ensuring their business is fully compliant
with the new measures.

"According to the regulator, the FSA, there is a lack of awareness
among HR departments of just how much the Act impacts on the personnel

Gilbert said the FSA is encouraging businesses to develop systems that
actively motivate people to comply. "This is a positive approach and
companies should react accordingly and look to introduce appropriate management
systems and controls – an area in which HR has particular expertise to offer,"
he said.

HR must work closely with compliance and risk managers if companies are to
adapt successfully to the regulations, confirms Nadine Majaro, a partner at

She explained, "HR needs to be an integral part of the function of the
overall management of risk.

"HR has focused on what it needs to do to comply. What it has not done
in some cases as part of the risk management function is look at what it must
doto best serve the business it is working with.

"HR must try and achieve this holistically for the whole business. Most
have achieved bits of this but have not thought about the whole picture."

The FSA is particularly keen to see that employees receive sufficient
training on regulatory requirements and keep up to date with changes in the

FSA’s Jackman said, "The important element is that training is timely
and properly planned, structured and evaluated. This will give a focus to
training departments and help to ensure a balance between training and other HR

Under the Act, HR professionals may be called upon by their company to do a
thorough re-check on the CV details of staff already registered by the FSA or
those who will now come within the new "approved persons" regime
under the Act.

Gilbert emphasised the need for these checks to be accurate. "The FSA
has indicated that HR directors of each firm will have to send a report on
employees wishing to become approved and that possible negligence claims could
arise for misrepresentation.

"These measures clearly fall with the HR function’s remit. The process
of recruitment, training and ongoing competency of employees will all need to
be revisited by the HR team in light of the new measures. We would encourage
firms to act now."

The FSA emphasises that one of the most significant areas the new
regulations will affect is how employers in the finance sector recruit

The rules include the need to relate the skills and knowledge of a
particular employee to the knowledge and skills required for the role concerned
and to take reasonable steps to obtain information about a potential employee’s
previous relevant activities and training.

Gilbert told Personnel Today that all new applicants for financial services
jobs will be required to submit their employment details to the FSA under the
new approved persons regime.

In addition directors will have to be approved, which could include many HR

"Pre-employment screening is also affected. Under the new regime
companies must carry out checks to ensure references are taken from suitable

"Companies now have to establish that given appropriate training and
supervision, new employees should be able to achieve competence in the role for
which they are intended.

"Therefore it is vital that at the time of recruitment an initial
assessment of the new employee’s relevant knowledge and skills should also be
carried out to determine the training required," said Gilbert.

But the Act could be an opportunity rather than a threat for HR. Alison
Wilsher, head of training and professional development at the British Venture
Capital Association, believes the Act will help HR departments within the
finance sector to become more central to the business.

"This will mean that HR is in the centre of business strategy, which
all HR departments should welcome because it will raise their profiles,"
she explained.

"I don’t think this is something HR should be frightened of as long as
it welcome it and doesn’t ignore it.

"HR departments need to realise that the FSA is not saying anything
new. This [the requirements under the Act] is mandatory for good HR practice.

FSA regulations guide

Firms must ensure under the new
training and competence rules that:

– Employees are competent

– Employees remain competent

– Employees are appropriately supervised

– Employees’ competence is regularly reviewed and the level of
competence is appropriate to the nature of the business

The training and competence rules include more detailed rules

– Recruitment

– Training

– Approved examinations

– Continuing competence

– Supervision

– Record keeping

These rules affect employees involved in:

– Advising and dealing in investments

– Managing investments

– Advising on investments

– Advising on broker funds and pension transfers

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