New research* has found that 64% of senior management individuals within the financial services sector feel they would be ‘fairly or completely’ confident in evidencing competency of their employees to the Financial Conduct Authority (FCA) in the event of a regulatory audit.

The poll, taken from a recent FCA Authorisations webinar – hosted in conjunction with independent compliance consultancy firm Complyport in April 2021 – surveyed a cross-section of financial service providers that were either already authorised or planning on going through the authorisation process within the next 18 months.

Respondents were asked to rate on a scale of 1 – 5 (1 being ‘not confident’, 5 being ‘completely confident’) how confident they would feel in evidencing competency within their firms to the regulator if required. 6% of respondents stated that they were ‘not confident’, with 21% noting that they were ‘completely confident’.

On paper, the results look encouraging. However, following on from our previous T&C webinar in February 2021, we wanted to focus our attention on determining any potential disparities that may exist between the ‘Tone from the Top’ and the ‘Tone from Within’ by actively asking members of senior management bodies in attendance how confident they felt in terms of evidencing competency in their respective firms.

Back in our February T&C webinar, we polled a cross-section of financial risk and compliance professionals and asked them the same question. The sentiment of the result was entirely conflicting, with 66% of firms stating they were ‘not confident at all’, ‘slightly confident’ or only ‘somewhat confident’ that their senior managers could demonstrate a consistent approach and application to T&C, with just 10% of participants stating that they were ‘completely confident’.

The purpose of this feedback is to inform, not sensationalise the results. We understand the sentiment of our polls is not indicative of all financial firms. Yet the conflicting conclusions are surprising and, candidly, not what we are seeing in the marketplace either.

What we are stressing is that effective T&C schemes genuinely matter from a risk-framework point-of-view, and if there are any potential alignment issues between your senior management body and those on the ground responsible for delivering the T&C scheme in your firm, you should look to rectify them to protect yourself from some difficult lines of questioning if the regulator should ever come knocking.”

Harvey asserts that with the FCA recently highlighting the importance for firms to carry out proactive data analysis of poor staff knowledge and performance in relation to the handling of vulnerable consumers, coupled with the exacting duty of responsibility that senior managers must bear to mitigate breaches by taking reasonable steps, firms should not overlook the importance of T&C and simply view it as a series of ‘tick-box’ exercises to achieve robust confidence in their own ability to produce satisfactory evidence if required.

Employees often codify required compliance and governance information as ‘boring’, so how do you get them to engage, retain and apply critical knowledge?

Do you simply throw the default training methodology at it in the hope that it will somehow revolutionise the people-development and cultural changes that the regulator – and hopefully, your firm – wants to see? A default methodology often characterised by annual refresher training, death by PowerPoint, and single point in-time competency assessments.

Crucially though, if senior managers and management bodies are basing their level of confidence on the effectiveness of deploying this default methodology – which often treats every employee the same, regardless of individual competency levels – how can they be realistically confident and satisfied that an assessment conducted 12 months, six months, or even two weeks ago genuinely reflects what everyone – in various role capacities – needs to know right now? To me, this line of proactive analysis simply does not align itself with what is defined as a ‘reasonable step’.

To further compound matters, we analysed over 72 million individual employee interactions from some of the world’s best-known financial brands over a three-year period and concluded that the average level of tenured employee competency within many financial services firms (pre-pandemic) stood at just 52%.

The significance of this study means that employees either only need to know 52% to perform their role optimally or that the additional 48% is lacking and is potentially having a serious detrimental impact on the productivity and governance practices within firms.

If you are still deploying the default T&C methodology, it is fair to say that it will be almost certainly impossible to objectively evidence true and ongoing competency levels in your firm for every member of staff; certainly not to any sort of regulatory standard that will: a) improve your culture b) improve the capability and knowledge of every employee in your firm and c) truly satisfy the evidential aspect for the regulator.

Genuine confidence can only come from best-in-class management information, not subjective opinion that is too often based on simply ‘conducting and completing’ some form of training to satisfy a requirement.

If you are thinking of your T&C scheme in any other way than with a goal to generate meaningful, evidence-based improve outcomes, you are ticking box. Ask yourself: why you are doing it, what is the point?

*Research from Elephants Don’t Forget