Training and Competence: A Practical Guide for Regulated Firms
Training and competence is the obligation firms are most likely to satisfy on paper and least likely to satisfy in substance. An annual e-learning module with a completion report is not a T&C scheme, and the difference becomes apparent the moment anyone looks at whether the people doing the work are actually competent to do it.
This guide covers what the Training and Competence sourcebook requires, how it interacts with the certification regime, and what a scheme that would survive scrutiny looks like at a smaller firm.
Two Separate Obligations
Firms frequently merge two things that are related but distinct.
The TC sourcebook applies to specified activities, principally those involving retail customers, and sets requirements around assessing competence, supervising people who are not yet competent, maintaining competence, and keeping records. For some activities it also requires an appropriate qualification.
The certification regime under SMCR requires firms to assess and certify, at least annually, that individuals performing certification functions are fit and proper. That is a broader population and a different test.
A person can be caught by both, by one, or by neither. Firms that run a single undifferentiated process usually end up doing the certification assessment adequately and the competence assessment not at all, because the latter requires looking at the quality of someone’s work rather than at their conduct record.
What “Competent” Actually Means
Competence is the ability to perform the role to the required standard, which means it has to be assessed against the specific role rather than in general.
That has two practical consequences. First, competence is not transferable by job title — someone competent in one product or customer type is not automatically competent in another, and a change of role should trigger a reassessment. Second, it cannot be evidenced by a certificate alone. A qualification demonstrates knowledge; competence requires evidence that the person applies it correctly in practice.
The usual evidence is observed work: file reviews, call monitoring, supervised casework, and documented assessment by someone who is themselves competent to judge.
Supervision Before Competence Is Assessed
Where someone has not yet been assessed as competent, the rules require appropriate supervision, and the supervision must be proportionate to how far they are from the standard.
This is where small firms most often fall short, usually for a structural reason: there may be only one person who could supervise, and they are also doing the work. Where that is the case the firm needs to be honest about it and find an answer — external review, a second pair of eyes from elsewhere in the group, or a deliberate decision to limit what the individual handles until they are assessed.
What does not work is treating supervision as something that happens informally because the office is small. If it is not recorded, it did not happen as far as any later review is concerned.
Maintaining Competence
Competence is not a status someone achieves once. The rules require firms to ensure it is maintained, which means continuing professional development, keeping up with regulatory and product change, and periodic reassessment.
A reasonable scheme sets a frequency for reassessment, defines what triggers an earlier one — a complaint, a file review finding, a change of role, a period away from the activity — and records the outcome either way. Recording only the assessments that passed is a common and visible weakness.
What a Scheme Should Contain
At a minimum: which roles and activities are in scope and why; the standard of competence for each; how competence is initially assessed and by whom; what supervision applies before sign-off; how competence is maintained and reassessed; what triggers an out-of-cycle review; and how all of it is recorded.
The document itself matters less than whether it describes what the firm does. A scheme copied from a template and never applied is worse than a short one the firm genuinely follows, because it sets a standard the firm is visibly not meeting.
Qualifications: Necessary, Not Sufficient
For certain activities the rules require an appropriate qualification from a recognised list, and firms generally handle this part well because it is binary — either the person holds it or they do not.
Two things get missed. The first is time limits: where someone has qualified but not performed the activity for a period, or has qualified long ago without maintaining knowledge, the firm needs to consider whether the qualification still evidences anything useful. The second is scope creep — someone qualified for one activity gradually taking on adjacent work the qualification does not cover, which happens quietly in small teams where roles blur.
Neither is difficult to control. Both require someone to be looking at what people are actually doing rather than at what their job description says.
When Someone Is Found Not Competent
This is the part most schemes do not describe, and it is the part that matters when it happens.
A workable process answers three questions in advance. What happens to the individual’s existing work — is it reviewed, and by whom? What restrictions apply while the gap is addressed, and who enforces them? And what is the remediation plan, with a date by which the position is reassessed?
There is also a reporting dimension. Depending on what the shortfall is and what it led to, there may be conduct rule or notification consequences, and those decisions should be taken deliberately rather than avoided because the conversation is uncomfortable.
Firms that have never had to run this process should walk through it hypothetically once. Discovering the gaps in your own scheme during a live case is considerably more expensive.
Records
Record-keeping obligations here are specific and long-running, extending well beyond the individual’s employment for some activities.
Firms routinely lose this when people leave. A competence file that walks out of the door with the employee, or that exists only in a former manager’s inbox, is a record-keeping failure that will be discovered at the worst possible point — typically when a complaint arrives about work that person did.
How It Interacts With the Conduct Rules
Everyone subject to the conduct rules must be trained on them and must understand how they apply to their own role. Generic training that explains the rules without translating them into the specific job is the most common version, and it is also the one least likely to change behaviour.
The connection to competence is direct: acting with due skill, care and diligence is a conduct rule, and a firm that has not satisfied itself someone is competent has not satisfied itself they can comply with it.
Who Owns It
Training and competence usually sits with the Compliance Oversight function, although at larger firms it may sit with a dedicated T&C manager or with HR under compliance oversight.
Wherever it sits, the SMF16 holder generally carries the accountability, and the work is substantial enough to need allowing for when the compliance function is sized. Assessing competence properly is time-consuming — it requires reviewing actual work rather than ticking a form — and a compliance arrangement scoped without it will produce a scheme that exists but does not operate.
Testing It
T&C should appear in the monitoring programme as a tested item. Useful testing asks whether everyone in scope has a current assessment, whether the evidence behind recent sign-offs would convince someone independent, whether supervision of non-competent staff is documented, and whether reassessments are happening on the stated cycle.
Testing that confirms records exist, without examining what is in them, tests the filing rather than the scheme.
What a Supervisor Will Ask
Who is in scope and how did you decide? Show me the competence assessment for a named individual. What evidence sits behind it? Who assessed them, and what makes that person qualified to do so? What happens when someone is not competent? When did you last reassess anyone, and did anyone fail?
That final question is worth anticipating. A scheme in which nobody has ever been found short is either an exceptional firm or a scheme that is not really assessing anything.
Frequently Asked Questions
Is an annual e-learning module enough?
Not on its own. Training is an input to competence, not evidence of it. Competence requires assessment against the role, usually based on observed work.
Does T&C apply to firms with no retail customers?
The TC sourcebook is activity-specific, so some firms fall outside much of it. The broader obligation to ensure employees are competent, and the certification regime, apply far more widely.
Can one person assess competence at a very small firm?
Yes, provided they are competent to do so and the assessment is genuinely independent of the work being assessed. Where that is not possible internally, external review is the usual answer.
How long must records be kept?
Longer than people expect, and for some activities well beyond the individual’s departure. Firms should assume records need to outlast the employment relationship and should plan storage accordingly.
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About the author
Adrian Lawrence FCA
Adrian is the founder and Managing Director of FD Capital. A Chartered Accountant and ICAEW Fellow, he became a finance director at 28 and has spent more than 25 years at C-suite level, including as finance director of a listed company and of a private equity backed management buy-out. Every search is run by our specialist team, with Adrian overseeing each mandate.
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