Training and Competence (T&C) Schemes: A Practical FCA Compliance Guide

The competent employees rule: SYSC 5.1.1R

The starting point for any firm is SYSC 5.1.1R, the competent employees rule. It states that a firm must employ personnel with the skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them. This is deliberately broad. It applies to all authorised firms and is not limited to retail business, which is why even wholesale-only firms cannot treat competence as an afterthought.

The rule is not applied in a vacuum. When complying with the competent employees requirements, a firm must take into account the nature, scale and complexity of its business, as set out in SYSC 5.1.5BR. A small firm with a narrow permission is held to a proportionate standard; a large firm running complex activities is expected to do more. Supporting guidance in SYSC 5.1.2G explains that a firm should assess an individual's suitability, including honesty and competence, normally at the point of recruitment.

SYSC 5.1.4G signposts that the TC sourcebook contains additional rules and guidance relating to specified retail activities. Firms that are not subject to TC may nevertheless wish to take TC into account when meeting the SYSC competence requirements, per SYSC 5.1.4AG. In other words, TC is the benchmark the FCA uses even where its detailed rules do not strictly apply.

Practically, this means a firm should read SYSC and TC together rather than in isolation. SYSC sets the outcome, competent people discharging their responsibilities, while TC supplies the tests and controls that show the outcome has been met for retail activities. A scheme that documents both the principle and the detailed steps gives a firm a defensible position if the FCA asks how it satisfied itself that an employee was competent.

When the detailed TC rules apply

The Training and Competence sourcebook is where the general obligation becomes concrete. TC 1.1.1R applies the sourcebook to firms whose employees carry on activities listed in TC Appendix 1 for retail clients, customers or consumers. The trigger is therefore the combination of a listed activity and a retail relationship. Purely wholesale activity falls outside the detailed TC rules, though SYSC still applies.

TC defines what competence means. Under the guidance at TC 1.1.4G, competence means having the skills, knowledge and expertise needed to discharge the responsibilities of an employee's role, and this includes achieving a good standard of ethical behaviour. Competence is therefore not the same as holding a qualification. A qualification can evidence knowledge, but conduct, judgement and application to real client work all form part of the assessment.

Because TC is activity-based, the first task in scheme design is a mapping exercise: identify every activity your employees carry on, decide which are TC Appendix 1 activities carried on for retail customers, and record where the detailed rules apply. That map drives everything that follows, including which roles need a qualification and which need enhanced supervision.

Attaining and assessing competence

The core discipline of a scheme is that competence must be demonstrated before it is signed off. TC 2.1.1R provides that a firm must not assess an employee as competent to carry on an activity in TC Appendix 1 until the employee has demonstrated the necessary competence to do so. This makes assessment an evidenced decision rather than a formality that follows the end of a training course.

Where an activity carries a qualification requirement, TC 2.1.6R requires a firm to ensure that an employee does not carry on that activity, other than an overseeing activity, without first attaining the relevant regulatory module of an appropriate qualification. Qualification is a gate for advice-heavy retail roles. According to the FCA, individuals must generally complete the appropriate qualification within a set period after starting the activity, and the FCA's training and competence guidance points to a maximum of 48 months to attain the full qualification.

Good assessment blends inputs rather than relying on any single one. Firms typically combine qualification evidence, observed client work, file and call reviews, knowledge tests and structured sign-off by an assessor. The output is a documented, dated decision that the employee has met the standard for a defined activity, which is exactly what the FCA expects to see when it asks how a competence judgement was reached.

Supervision until an employee is competent

Employees do not become competent on their first day, so the scheme must manage the gap. TC 2.1.2R states that a firm must not allow an employee to carry on an activity in TC Appendix 1 without appropriate supervision. This applies whether or not the employee has been assessed as competent, but the intensity is expected to change over time.

The guidance at TC 2.1.3G is explicit that the level and intensity of supervision will be significantly greater in the period before the firm has assessed the employee as competent than afterwards. A trainee adviser might have every recommendation checked before it goes to a client, moving to sample-based review once competence is signed off. The scheme should define these tiers and the criteria for moving between them.

The people doing the supervising must themselves be capable. TC 2.1.5R addresses supervisors of employees who are not yet assessed as competent, requiring that those who supervise employees giving personal recommendations to retail clients on certain products have attained an appropriate qualification. A scheme should therefore treat supervisor competence as a distinct control, not an assumption.

Maintaining competence and continuing professional development

Competence is not a permanent status. TC 2.1.12R requires a firm to review, on a regular and frequent basis, employees' competence and to take appropriate action to ensure that they remain competent for their role. Markets change, products change and rules change, so a scheme must include a cycle of ongoing review rather than a one-off assessment.

For one population the FCA sets a specific quantitative floor. TC 2.1.15R requires a firm to ensure that a retail investment adviser who has been assessed as competent remains competent by completing a minimum of 35 hours of appropriate continuing professional development in each 12 month period. The guidance at TC 2.1.16G indicates that no less than 21 of those hours should be structured CPD, such as courses, seminars or accredited e-learning, with the balance able to come from less formal development.

CPD only counts if it is relevant and evidenced. The scheme should link each employee's development plan to the gaps identified in review, capture what was completed and why it was appropriate, and feed the results back into the next competence assessment. That loop is what allows a firm to say, with records to back it up, that its people have attained and continue to maintain competence.

Record keeping and running the scheme

A training and competence scheme is only as strong as the evidence behind it. The FCA expects firms to keep records covering staff recruitment, training, competence assessments, staff supervision and the appropriate qualifications held for TC activities. Without these, a firm cannot demonstrate that it met SYSC 5.1.1R or the detailed TC rules, whatever the reality on the ground.

TC 3.1.1R sets the retention periods. Records must be kept for at least five years after an employee stops carrying on the activity for MiFID business, three years for non-MiFID business, and indefinitely for a pension transfer specialist. Building these periods into your records policy prevents accidental early deletion of evidence you may later need to rely on.

In practice, a robust scheme is owned by a named senior individual, documented in a written scheme description, and reviewed periodically for coverage and effectiveness. Firms building or refreshing their arrangements often align the scheme with wider systems and controls work; our governance and control tooling is designed to help firms record training, assessments and supervision in one place. Firms preparing an application can also address competence as part of the FCA authorisation process, where the regulator will want to see that the people running the business are competent from day one.

Conclusion

A training and competence scheme translates two FCA obligations into daily practice. The competent employees rule in SYSC 5.1.1R sets a universal expectation of skill, knowledge and expertise, applied in proportion to the nature, scale and complexity of the business. The TC sourcebook then adds detailed requirements for named retail activities, covering qualifications, assessment before sign-off, supervision that is heavier until competence is demonstrated, and continuing professional development that keeps competence current.

The firms that handle this well treat competence as an evidenced process rather than a status. They map their activities, gate advice roles behind the right qualifications, supervise trainees closely, assess competence only when it is shown, and keep the records that TC 3.1.1R requires. Done consistently, a scheme is not just a regulatory obligation but a practical way to protect customers and the firm.

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