Training and Competence Requirements for FCA-Regulated Firms: A Complete Guide

What Is the Training and Competence Regime?

The FCA's Training and Competence (TC) sourcebook sets out requirements that firms must meet to ensure their employees who carry out regulated activities are competent to do so. The regime applies to all FCA-authorised firms and covers employees who: give advice on investments, arrange deals in investments, manage investments, carry out insurance mediation, or perform other activities specified in the TC sourcebook.

The fundamental principle is straightforward: a firm must not allow an employee to carry out a regulated activity unless that employee has been assessed as competent to do so, or is being supervised by a competent person while working towards competence.

Regulatory Framework

The TC sourcebook sits within the FCA Handbook and is supplemented by several related provisions:

SYSC 5.1 (Senior Management Arrangements, Systems and Controls) requires firms to employ personnel with the skills, knowledge and expertise necessary for the discharge of their responsibilities.

The SM&CR (Senior Managers and Certification Regime) imposes additional competence requirements on senior managers and certified persons, including annual fitness and propriety assessments.

SUP 10C (FCA-approved persons) sets competence expectations for those performing controlled functions.

Principle 3 (Management and control) requires firms to take reasonable care to organise and control their affairs responsibly and effectively, with adequate risk management systems — which includes having competent staff.

Together, these create a comprehensive framework that covers recruitment, initial training, ongoing competence, supervision and record-keeping.

Who Is in Scope?

The TC sourcebook applies primarily to employees who carry out activities listed in TC Appendix 1, including:

• Advising on and dealing in securities and derivatives
• Advising on and arranging pension transfers and opt-outs
• Advising on and arranging mortgages
• Advising on and arranging general insurance and protection products
• Managing investments
• Overseeing regulated activities on a day-to-day basis

However, the competence obligation is broader than TC Appendix 1. Under SYSC 5.1 and the SM&CR, firms must ensure that all employees involved in regulated activities — including those in compliance, risk management, and operational roles — are competent for their roles.

For payment institutions and EMIs, while many employees may not fall within the traditional TC Appendix 1 activities, the firm must still ensure that staff involved in AML compliance, customer due diligence, complaint handling and safeguarding are adequately trained and competent.

Achieving Initial Competence

Before an employee can carry out a regulated activity unsupervised, the firm must be satisfied that they have achieved competence. This typically involves:

Appropriate examinations. For many TC activities, the FCA specifies or recommends professional qualifications that employees must hold. These examinations establish a baseline level of technical knowledge. The FCA's TC Appendix 4 lists the examinations appropriate for each activity.

Structured training. Beyond examinations, firms must provide structured training covering the firm's products, processes, systems and regulatory obligations. This training should be tailored to the specific activities the employee will perform.

Supervised practice. During the period between joining the firm and being assessed as competent, the employee must work under the supervision of a competent person. The level of supervision should reflect the employee's experience and the complexity of the activities.

Competence assessment. The firm must formally assess the employee against defined competence standards before allowing them to act unsupervised. This assessment should cover technical knowledge, practical skills, and understanding of regulatory requirements.

Maintaining Competence

Achieving initial competence is only the beginning. Firms must ensure that employees maintain their competence throughout their career. This requires:

Continuing professional development (CPD). Employees should undertake ongoing training to keep their knowledge current. While the FCA does not prescribe specific CPD hours for all activities, many professional bodies associated with TC qualifications require annual CPD.

Regular competence reviews. Firms should periodically reassess employee competence, particularly when there are changes to products, regulations, or the firm's business model. Annual competence reviews are standard practice.

Performance monitoring. Firms should monitor the quality of employees' work through file reviews, observation, customer feedback analysis and management information. Poor performance may indicate a competence gap requiring remedial training.

Regulatory updates. Employees must be kept informed of regulatory changes that affect their activities. This is particularly important in fast-moving areas such as payment services regulation, cryptoasset regulation and consumer protection.

Supervision of Trainees

The FCA expects firms to have robust supervision arrangements for employees who have not yet achieved competence. Key requirements include:

Proportionate supervision. The level of supervision must reflect the risk associated with the activity and the trainee's level of experience. Higher-risk activities (such as pension transfer advice) require closer supervision than lower-risk activities.

Named supervisors. Each trainee should have a named supervisor who is responsible for overseeing their work, reviewing their output and assessing their progress towards competence.

Documented supervision. Firms must maintain records of supervision activities, including reviews conducted, feedback given and any remedial actions taken.

Escalation procedures. Supervisors must know when and how to escalate concerns about a trainee's progress or competence. There should be clear procedures for extending supervised periods or, in serious cases, removing an employee from regulated activities.

Record-Keeping

The FCA expects firms to maintain comprehensive records of their training and competence activities, including:

• Training plans for each employee in TC scope
• Records of qualifications obtained and examinations passed
• Supervision logs and review outcomes
• Competence assessment records and results
• CPD records demonstrating ongoing learning
• Any remedial actions taken and their outcomes

These records must be maintained for as long as the employee is carrying out regulated activities and for a reasonable period afterwards (typically three years after the employee leaves the role).

Common Supervisory Findings

The FCA's supervisory work regularly identifies deficiencies in firms' training and competence arrangements:

• Inadequate competence standards. Firms define competence standards that are too vague or too generic, making it impossible to assess whether an employee has genuinely achieved competence.

• Insufficient supervision. Trainees are allowed to carry out regulated activities with minimal oversight, or supervisors lack the time or expertise to provide meaningful supervision.

• Poor record-keeping. Firms cannot evidence that training has been delivered, competence has been assessed, or supervision has been provided. Without records, the firm cannot demonstrate compliance.

• No ongoing competence assessment. Firms assess competence once and then assume it continues indefinitely. The FCA expects ongoing assessment to identify and address competence gaps.

• Generic training programmes. Training is not tailored to the firm's specific activities, products and customer base. The FCA expects training to address the particular risks associated with the firm's business.

• Failure to address competence gaps. When performance monitoring identifies potential competence issues, firms do not take timely remedial action.

Building an Effective Training Programme

Start with a training needs analysis. Identify all regulated activities performed within the firm, the employees who perform them, and the competence standards required for each activity.

Design role-specific training. Develop training programmes tailored to each role, covering technical knowledge, practical skills, regulatory requirements and firm-specific procedures.

Implement structured supervision. Establish clear supervision arrangements with named supervisors, documented review processes and defined escalation procedures.

Assess competence rigorously. Use a combination of examinations, practical assessments, file reviews and observation to assess whether employees have achieved and maintain competence.

Monitor and review. Regularly review the effectiveness of your training programme using management information such as complaint rates, error rates, customer outcomes and regulatory findings.

Embed in governance. Ensure that training and competence is a standing item on the compliance monitoring programme and is reported to senior management. The SM&CR makes clear that senior managers are responsible for ensuring their areas have competent staff.

Regulatory Outlook

The FCA continues to emphasise the importance of competence in delivering good customer outcomes, particularly in the context of Consumer Duty. Firms must ensure that their training programmes equip employees to deliver the outcomes that Consumer Duty requires, including fair value, appropriate products and helpful customer support.

The integration of training and competence with Consumer Duty represents an evolution in the FCA's approach: competence is not just about knowing the rules, but about understanding and delivering good outcomes for customers.