Professionalism & Competence

• Topic 01

  Professionalism & Competence

  48 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. Under the FCA's TC sourcebook, what ongoing obligation does a firm have in relation to monitoring an individual's competence after they have been assessed as competent?

   • A
     Once assessed as competent, a firm has no further obligation to monitor the individual's performance
   • B
     The firm must reassess competence every five years using the same assessment used initially
   • C
     The firm must continue to monitor the individual's competence on an ongoing basis and take action where it identifies deficiencies
     Correct answer
   • D
     The FCA carries out ongoing competence monitoring; the firm has no additional obligation after initial assessment
   Explanation

   Under TC 2.1.12R, competence monitoring is an ongoing obligation, not a one-off event. After initial assessment, firms must continue to monitor competence through ongoing supervision, file reviews, training needs analysis, and CPD tracking. If a competence deficiency is identified, the firm must take appropriate remedial action, which may include additional training, temporary supervision, or in serious cases restricting the individual's activities.

2. Where would a consumer look to verify that a certified investment adviser — who is not an SMF holder — is properly assessed as fit and proper?

   • A
     The firm's own website, as there is no public record for certified persons
   • B
     The FCA's Directory of Certified and Assessed Persons
     Correct answer
   • C
     The FCA's regulatory enforcement database
   • D
     The FCA's Financial Services Register
   Explanation

   Since SM&CR replaced the Approved Persons Regime, certified individuals (those in significant harm functions who are not Senior Managers) no longer appear on the main Financial Services Register. The FCA's Directory of Certified and Assessed Persons (launched 2021) is the dedicated public-facing resource where consumers and employers can verify that an individual has been assessed as fit and proper by their firm for a certified function.

3. A firm's advisers earn higher bonuses when they recommend in-house fund products. The firm argues this is not commission because the payment comes from the firm, not the product provider. Does this arrangement comply with the RDR's adviser charging rules?

   • A
     Yes — as long as the firm discloses the bonus arrangement to clients, it automatically complies with adviser charging rules
   • B
     Potentially not — the RDR and FCA rules are concerned with remuneration arrangements that create product biases; the FCA has issued guidance making clear that internal incentives that bias advice towards certain products can breach adviser charging and Consumer Duty rules
     Correct answer
   • C
     No, but only if the in-house funds are more expensive than equivalent external products — otherwise the arrangement is acceptable
   • D
     No — the RDR absolutely prohibits all performance-related pay for advisers regardless of its source or structure
   Explanation

   The RDR banned commission from product providers. However, the FCA has been clear that the spirit of the rule is to eliminate remuneration structures that incentivise advisers to recommend products that are not in clients' best interests. Internal bonus structures that reward advisers for recommending the firm's own products can create the same biases as commission and may breach FCA rules on adviser independence, product governance, and the Consumer Duty's price and value outcome. The FCA has specifically examined in-house fund biases.