02 September 2020 - Post by:
The UK Financial Conduct Authority (FCA) has highlighted shortcomings relating to firms’ employee training programmes in 32% of the Final Notices that it has published since the start of 2019.
With this statistic in mind, firms will no doubt want to compare the training that they provide to their employees on the FCA’s Code of Conduct against the ‘positive’ and ‘negative’ indicators that the FCA published on this topic the other week.
The full list of ‘positive’ and ‘negative’ indicators that has been published by the FCA is available here. However, in summary:
- Adequate Senior Manager oversight: The design and roll-out of training on the FCA’s Code of Conduct is likely to be handled by Compliance and/or HR, or a dedicated training team if a firm has one. However, the FCA has emphasised the importance of Senior Managers being able to demonstrate that they have adequate awareness, involvement and oversight of the training that their employees receive on the FCA’s Code of Conduct. The FCA is most likely aiming this comment at firms’ Senior Managers who have been allocated the Prescribed Responsibility relating to the provision of training on, and the reporting of breaches of, the FCA’s Code of Conduct.
- Interactive training that uses suitable scenarios: Similar to comments that the FCA has made previously in relation to other topics, the FCA has advocated the provision of interactive training on its Code of Conduct which includes ‘realistic’ scenarios. Echoing the requirement for tailored training in section 64B of the Financial Services and Markets Act 2000, the FCA has emphasised that scenarios used in training sessions on the Code of Conduct must be suitably tailored to employees’ roles and responsibilities.
- Involvement of line managers: Although training on the FCA’s Code of Conduct may be led by internal subject matter experts or external advisers, the FCA has emphasised the importance of line managers being involved in delivering training. The participation of line managers often helps to underline the importance of the training and also allows line managers to articulate their expectations of employees in relation to the FCA’s Code of Conduct.
- Including training on the FCA’s Code of Conduct into ‘business as usual’ training cycles: When firms implemented the SMCR, they went through a process of providing their employees with specific and ad hoc training relating to the Code of Conduct. However, after that point passes, firms need to include this training in their regular training cycles and induction programmes.
- Assessing the effectiveness of training on the FCA’s Code of Conduct: The FCA has included assessing the effectiveness of training on its Code of Conduct as a ‘positive’ indicator of firms’ training programmes. However, the FCA has stopped short of providing any insights or guidance in terms of how firms can go about assessing the effectiveness of their training in this area. There are a variety of ways in which assessments of this kind can be conducted and a range of data points that can be taken into account. One metric that may be of relevance in this context is the volume of allegations that are raised and/or investigated in relation to certain types of misconduct. For example, if a firm identifies a number of investigations that focus on a specific area that falls within the scope of the FCA’s Code of Conduct, this area may need to be highlighted or covered in a different way during training in the future.
- Context is key: The FCA has said that firms should ensure that training on its Code of Conduct is ‘put in the context of the overall’ SMCR and that the Code of Conduct should not be presented as ‘what we do already’. Individuals who were approved persons prior to the implementation of the SMCR should have been familiar with the FCA’s Individual Conduct Rules which, with the exception of one rule, were carried across from the FCA’s Statement of Principles for Approved Persons. However, many firms used their initial training to employees on the FCA’s Code of Conduct as an opportunity to reset and/or re-emphasise their values and standards, as well as how those values and standards fit with the FCA’s Code of Conduct.
- Links to fitness and propriety and performance assessments: Consistent with the FCA’s latest observations, most firms have implemented revised policies and procedures that set out how assessments of fitness and propriety and potential breaches of the FCA’s Code of Conduct fit within their disciplinary processes. Some firms incorporate these processes into their disciplinary processes, whereas others have opted to implement separate processes. Although not expressly referred to by the FCA, firms should also ensure that these processes are also aligned with their approaches to adjusting variable remuneration, which was a focus of the FCA’s recent letter to Chairs of Remuneration Committees.
Although the ‘positive’ and ‘negative’ indicators specified by the FCA are stated as applying to solo-regulated firms, dual-regulated firms should also take them into account when reviewing and assessing the effectiveness of the training that they provide to their employees on the FCA’s Code of Conduct.
In addition to its observations about training on the Code of Conduct, the FCA has also published some ‘positive’ and ‘negative’ indicators about firms’ fitness and propriety assessments for Senior Managers and Certified Persons. We considered these observations in a separate blog post which is available here.
This article appeared on the Allen & Overy Investigations Insight Blog – sign up to the blog to receive updates on important developments in business crime and financial services investigations – email Investigations.firstname.lastname@example.org.