What key Policy Decisions do I want before drafting a T&C Scheme?

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Nick Smith of EAM Consulting discusses some of the key policy decisions that underpin the design of an appropriate T&C scheme for your firm.

To be able to draft your T&C scheme with confidence and avoid later rework there are some core areas where the policy and approach needs to be agreed before the design work starts.

Each firm’s T&C arrangements need to be appropriate to the firm and play their part in working towards the achievement of the firm’s business goals, mitigating the people risk components of conduct risk and ensuring good customer outcomes.

Arrangements that work well in one firm may be less than effective in another, similar business because the firms’ cultures are different, so there is no standard ‘right way’ to meet the T&C requirements.

In order to be able to do these, the arrangements need to be seen by individuals, line management and the board as being appropriate. The determination of what is appropriate will be informed not only by the nature and design of the firm’s business but also the firm’s culture. Arrangements that work well in one firm may be less than effective in another, similar business because the firms’ cultures are different, so there is no standard ‘right way’ to meet the T&C requirements.

Hence, if you are going to design appropriate T&C arrangements for your firm you will first need to get agreement on some key issues of policy. Without these decisions, which will have a bearing on how you structure the arrangements, you stand little chance of designing something that is seen as appropriate.

So what are these key issues? Below are some thoughts on a dozen key issues. Clearly they may not all apply to every business model and for some firms there may be others to add to the list but these are, I believe, the core areas where a policy decision is required before design work can be undertaken with confidence.

1.What is the scope of the scheme?


The ‘competent employee rule’ and its supporting guidance make it clear that T&C arrangements should be in place for all employees. However, the T&C arrangements should adopt a risk based approach and so the arrangements for some roles will require more detail than for others. The main options for the scope of the arrangements are, therefore, to have:

  • One scheme with various exceptions or additional requirements for specific roles
  • More than one scheme so that the different schemes can be tailored to different roles or groups of roles

Whilst it may seem attractive to have a single scheme to cover all staff this may not always be the most practical option and the decision should be a pragmatic one. The key driver should be the ease of use of the scheme documentation for those operating the arrangements. The scope should also be clearly stated in the policy section at the start of the document(s).

2.What is the Aim of the Scheme?


The aim of the Scheme should set out how the arrangements will help achieve the business goals. Compliance with the various rules and guidance around competence should be a natural consequence of designing effective T&C arrangements and not the key driver for them.

Possible aims might be:
The aim of these training and competence arrangements is to provide colleagues with the knowledge, skills, tools and supervision necessary to enable them to carry out the responsibilities allocated to them.

Or

The aim of these competence arrangements is to provide Advisers with the knowledge, skills, tools and supervision to enable them to offer products to the customers of FIRM in accordance with the applicable rules and codes of conduct.

3.How will the scheme be governed?


Firms need to ensure that their T&C arrangements are, and continue to be, appropriate for the firm and the roles within it. Firms that are large enough for line management and functions, such as Human Resources, Compliance and managing the T&C arrangements, to be carried out by different individuals should establish a governing body for their T&C arrangements. This “T&C Committee” should meet regularly to carry out the three key activities of:

  • Monitoring the effectiveness of the T&C arrangements
  • Acting as the change control for the arrangements
  • Authorising exceptions to the arrangements

Further ideas on the governance for T&C can be found in an article in the January 2014 edition of TC News.

4.Who is to have authority to “sign-off” individuals as competent?


The two main options here are to:

  • delegate the authority to the line management
  • vest the authority in a few nominated individuals

Whilst the line management may be best placed to judge the competence of an individual they are also subject to potential conflicts of interest, particularly if the ‘sign-off’ of an individual will reduce the workload of the supervisor. It is also important to maintain a level of consistency in the standards applied and to ensure that the appropriate records are completed.

One approach that has worked well is to restrict the authority to a selected few who will consider the application for ‘sign-off’ from the individual’s supervisor based on the evidence presented.

5.Who should have which key responsibilities?


The table below suggests an approach to the allocation of some key responsibilities:

Who Key Responsibility
Individuals Maintenance of their own competence

Maintenance of their own training records

First line managers As above plus

Ensuring the competence of their team

Maintenance of the training records for their team

Senior Managers As above plus ensuring that the Scheme is implemented in their area of responsibility
Training Manager Delivery of the required training
T&C Manager Reporting to the T&C Committee on the appropriateness and effectiveness of the T&C arrangements including appropriate MI

Maintenance of the Scheme(s) documentation

Sign-off of individuals as competent

Compliance Monitoring the effectiveness of the T&C arrangements as evidenced through business outputs and outcomes

Ensuring that the T&C arrangements meet the regulatory requirements

T&C Committee Approval of amendments to the T&C Scheme Manual

Authorisation of exceptions to the T&C arrangements

Monitoring the effectiveness of the T&C arrangements

 

6.What degree of prescription should be adopted?
In an ideal world a Scheme would allow the supervisor, who is best placed to determine the needs of an individual, the discretion to provide the appropriate supervision based on the individual’s requirements. However, many supervisors are not comfortable with full autonomy and, without good MI, many firms may not want to allow such free reign. It is important to be clear on what the key stakeholders believe is the appropriate balance between central direction and autonomy.

7.Are there any variations for part-time employees?
As part of the RDR the then FSA consulted on the idea of allowing part time advisers to have a reduced CPD requirement. The responses were clear that this was not appropriate as part time advisers should not be allowed to be ‘part-competent’. On the same basis the other requirements of the T&C Scheme should apply in full to part time employees.

8.Who is an individual’s Supervisor?
For an overall view to be taken of an individual’s competence then all of the evidence needs to come together and be considered by one person. Hence, even where a matrix management approach is adopted each employee should have a Nominated Supervisor who is responsible for supervising their performance and ensuring that they maintain the required level of competence. Further, when an individual works under the management of someone other than their Nominated Supervisor then that manager should provide appropriate feedback to the Nominated Supervisor on the individual’s performance.

9.What is the span of control for supervisors?
For each employee to receive the supervision that they require then their supervisor needs enough time to provide this. It follows that there needs to be a limit to the number of individuals that any one supervisor can look after if the arrangements are to be effective and avoid a supervisor being overloaded.

The main options are to:

  • Apply a simple maximum
  • Apply a weighting system that takes into account the supervision level applied to each member of a team
  • Allow line management discretion to set team sizes

I have seen all of these approaches work effectively in different firms provided that the chosen approach is appropriate to the firm and its culture.

10.What is the operational role of supervisors?
A supervisor’s primary task is to provide their team with supervision and an operational role may conflict with this. It will certainly reduce the appropriate span of control for the supervisor in 9 above. However, a supervisor may need to demonstrate the operational role to a supervisee or deal with a customer if a difficult case is referred to them. Hence the main options are for supervisors to:

  • Have an operational role and targets
  • Have an operational role but not be set targets
  • Be prohibited from operational activity

The first of these is likely to result in conflicts of interest and so should, ideally, be avoided. The choice between the other two will depend on the nature of the operational role and the competence of the supervisor in that operational role.

11.May supervisory tasks be delegated?
To make best use of resources it is likely that some supervisory tasks should be carried out by someone other than the supervisor. This approach would enable a specialist coach to be used or a specialist team to monitor the quality of an individual’s work. It may also increase the appropriate span of control for the supervisor in 9 above. However, if the supervisor is still to have an overall view of an individual’s competence then they will need feedback from the delegates on their supervisee. It is important to be clear on:

  • Which supervisory tasks may be delegated
  • The process for delegation
  • To whom tasks can be delegated
  • The feedback is to be given to the supervisor

12.What is the policy for assessment failures?
The determination of competence requires the use of various forms of assessment. Inevitably some individuals will not pass all assessments first time and so a failure policy setting out the action to be undertaken following a failure will be required. Many firms have adopted a ‘three strikes and out’ approach. However, provided an assessment is not compromised by repeated sittings, and so remains valid, then unlimited attempts could be permitted as, for example, with the driving test. That said, permitting unlimited attempts is not likely to be an economically viable option for a firm and so a limit will need to be set. The number of permitted attempts needs to be agreed along with the steps to be followed after each failure. If there are mitigating circumstances for giving an individual more than the permitted number of attempts then this would be the sort of exception that the T&C Committee should authorise.

 

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About Author

Nick Smith

Experienced business process consultant Nick has wide ranging experience of managing, auditing, designing, administering and delivering training strategies and events to enhance human capital to address defined business needs.

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