At the beginning of September, the Central Bank published revised minimum competency requirements. The MCC is relevant for those at work in insurance – here, Siobhan Wynne from The Insurance Institute highlights the key points you should know about the recent updates.
The Minimum Competency Requirements were first introduced on 1 January 2007 and established minimum professional standards for staff of financial service providers with particular emphasis on staff dealing with consumers in relation to retail financial products. The Requirements were reviewed in 2011 and, from 1 December 2011, were replaced with the Minimum Competency Code 2011. Published on 26 November 2016, the Central Bank’s Consultation Paper CP106 sought feedback on the impact of recent EU developments in the area of professional knowledge and competence requirements.
These EU developments include:
- Mortgage Credit Regulations
- Markets in Financial Instruments Directive II (MiFID II)
- Insurance Distribution Directive (IDD).
The output of the Central Bank’s consultation and review were published on 1 September 2017 and come into effect from 3 January 2018.
The most visible difference between the MCC 2011 and the Central Bank’s recent publications is that the ‘MCC’ now consists of the Minimum Competency Code 2017 (MCC 2017) and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Minimum Competency Regulations 2017. The MCC 2017 sets out the minimum competency standards to be met by those falling within the Code’s scope when undertaking certain controlled functions. The MCC 2017 also contains details on the recognition of qualifications for MCC purposes. The obligations on regulated firms in respect of minimum competency have been removed from the MCC and are now contained in the Minimum Competency Regulations 2017.
The definition of advice has been revised and a definition regarding the provision of information has been included to take account of the definitions contained in the Mortgage Credit Regulations, MiFID II and the IDD. Advice is more narrowly defined than previously and is further clarified by the new definition of information. Table 1 shows the previous and current definitions.
Additional definitions have been added; some for terms which already appeared in MCC 2011 (e.g. controlled function) and others to support the additions relevant to mortgage credit agreements and MiFID (which are outside the scope of this article which focuses on general insurance only).
The provision of advice to a consumer, whether at the consumer’s request or at the initiative of the firm, in the course of providing or in relation to the provision of a retail financial product or in carrying out any of the specified functions.
The provision of a personal recommendation to a person, whether at the person’s request or at the initiative of the firm, in the course of performing a relevant function.
The provision of information to a person, whether at the person’s request or at the initiative of the firm, that may assist the person in the choice of retail financial product, or in the context of the provision of MiFID services or activities.
|Note: in MCC 2011 (in relation to advice) and in MCC 2017 (in relation to information), for the avoidance of doubt the Central Bank outlines examples of items that fall outside of the scope of these definitions. Find out more at www.centralbank.ie|
Newly recognised qualifications
As part of the ongoing assessment of the MCC 2017, the Central Bank will continue to consider new qualifications or modified existing qualifications. However, no newly recognised qualifications appear in the MCC 2017.
Many of the additions to MCC 2011 relate to MiFID activities (and are therefore beyond the scope of this article which focuses on general insurance). Two examples of changes relating to MiFID activities are the requirement to provide a Certificate of Experience for new entrants, signed on behalf of the regulated firm, to demonstrate that the minimum experience requirement has been met and the requirement that those grandfathered in respect of MiFID II investment products must obtain a recognised qualification (relevant to the function being exercised) and at least six months experience by 3 January 2018.
Obligations on regulated firms
The obligation in the Minimum Competency Regulations 2017 (Part 2(4)) that regulated firms ensure that a person performing a relevant function on its behalf has obtained the competence and skills appropriate to the relevant function, through experience or training gained in an employment context, brings the regulated firms’ MCC obligations in line with the Fitness and Probity (F&P) Standards’ requirement that a person be able to demonstrate that they have obtained the competence and skills appropriate to the relevant function.
An annual review of an employee's qualifications, development and experience needs has been introduced under Part 5(13) of the Minimum Competency Regulations 2017. It is at the discretion of the regulated firm as to whether this new requirement is incorporated into an employee’s annual training.
Regulated firms will retain records demonstrating the compliance of a person for whom the firm is responsible with the MCC for a minimum period of 6 years after the date the person ceases to perform a relevant function on behalf of the firm (Minimum Competency Regulations 2017 Part 6(17)).
Grandfathering and the Investment Intermediaries Act
A grandfathered person (in respect of relevant activities that fall within the scope of the firms authorised under the Investment Intermediaries Act 1995) can continue to avail of grandfathering arrangements under the MCC 2017 and Minimum Competency Regulations 2017.
New specified functions – product design and reinsurance distribution
A new specified function has been included for those ‘directly involved in the design of retail financial products’. This means that at least one key person with material influence on the final decision regarding product design must meet MCC 2017 standards for that product. This person will have influence among the decision making group and will hold consumers’ interests at the forefront of the final decision regarding product design. It is expected that this person will hold a qualification recognised under MCC for the product being devised or created. The choice of this person with material influence will be at the discretion of the firm but will exclude new entrants.
A new specified function has been included for those ‘directly involved in the activity of reinsurance distribution (as defined in IDD) on behalf of a reinsurance intermediary or on behalf of a reinsurance undertaking’. This new specified function replaces that relating to those ‘directly involved in the activity of reinsurance mediation (as defined in the Insurance Mediation Regulations 2005)’.
Staff involved in insurance and reinsurance distribution activities
In general, regulated firms must ensure that persons carrying out controlled functions on their behalf meet F&P Standards. To ensure compliance with IDD, the following CPD requirements apply:
- Staff of insurance undertakings involved in insurance distribution activities dealing with customers falling outside of the definition of ‘consumer’ must undertake 15 hours annual CPD in relation to insurance.
- Staff of reinsurance undertakings involved in reinsurance distribution activities must undertake 15 hours annual CPD in relation to insurance/ reinsurance.
- Staff of insurance intermediaries involved in insurance distribution activities dealing with customers falling outside of the definition of ‘consumer’ must undertake 15 hours annual CPD in relation to IDD knowledge and competency requirements.
The term ‘formal’ has been removed in relation to CPD hours as ‘informal’ hours are no longer required under the MCC 2017. This has no implication for CPD hours.
The MCC 2017 and Minimum Competency Regulations 2017 apply to credit unions when acting as retail intermediaries or when providing mortgage credit agreements. In CP106 it was proposed that the MCC would be extended to apply to all credit union activities within the scope of the MCC (e.g. credit union lending and term deposit activities). However, the Central Bank are going to undertake further work before making this decision. This further work will assess the impact of the proposed changes on the credit union sector and determine an appropriate implementation approach.