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1. Transfer & Opt Outs Reporting – A reminder
2. Mortgage Code Complaints Annual Report – A Reminder
3. Recent FSA ‘Focussed’ Visit - Feedback
4. FSCS annual levy 2003/04 Designated investments Sub-Scheme: £87.9m*
5. Drawdown ‘MOT’
6. FSA Looking at Capital Protected Products:
7. Data Protection Scam – Again!
8. E-Regulation - Looking for an easier life?
9. FSA shows a particular interest in Grand fathered Advisers and Supervisors
10. Outcome of consultation on general insurance regulation
11. Money Laundering – New Services
12. Supervisory Training – 2-day supervisor qualification course

Ladies & Gentlemen

Please find enclosed the latest compliance and industry news.

As usual, sit back and enjoy!

Kind Regards

ATEB Consultants

Which article applies to me?
Please use the following table to decide which article applies to you, if any:

Investment (IFA)	1	2	3	4	5	6	7	8	9	10	11	12
Directors/Partners
Compliance / A&O Function
Money Laundering Officer
Advisers & Trainees
T&C Supervisor
Pensions Transfer Specialist
Back Office
*Mortgage (inc. IFAs)	1	2	3	4	5	6	7	8	9	10	11	12
Director/Partner
Compliance / A&O Function
Sales Advisor
T&C Supervisor
Back Office

*Includes Mortgage arms of IFA and APF firms

1. Transfer & Opt Outs Reporting – A reminder

Don’t forget to send in your Transfer & Opt Out statistics by the end of this month (first week in July). All the information you need is in ATEB news April 2003. 

• The ‘reporting’ rule only affects those firms that are authorised to conduct ‘Pension Transfer and Pension Opt Out’ transactions.
• There are no specific reporting dates, however most firms have adopted six-month returns in early January to coincide with 6 months after the end of the ‘transitional period’.
• These do not include transfers from personal pension to personal pension.
• Nil returns are not required.

Dates summary:

January – Six monthly and quarterly

April - quarterly

July – Six monthly and quarterly

October - quarterly

The return will need to indicate the number of cases falling into category of Insistent client, execution only & correspondence only (These three categories should also be split between transfer, opt-out and non-joiner cases).

ATEB view:

None, for information only

Action required by you:

Ensure that you send your return in on time and that you continue to keep clear records for an indefinite period and are able to report accurately on time with the minimum of fuss. If you need a proforma to report or you are unsure, please speak with your local ATEB consultant.

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2. Mortgage Code Complaints Annual Report – A Reminder

This article applies to all IFA firms registered with the MCCB

The annual complaints report (including nil returns) must be submitted by 30 June 2003.

Under MCCB Registration Rule 5.1.6.7, each firm is required to send to MCCB an annual Complaints Report for the period 1 May 2002 - 30 April 2003, detailing the type and number of mortgage complaints received by the firm. Reports must be submitted in paper form only. Firms which have no recorded complaints are required to submit their proforma to confirm this fact and comply with the reporting requirement.

ATEB view:

None, for information only

Action required by you:

Obtain the proforma, which is available from www.mortagecode.org.uk under industry/publications/ forms. Alternatively, ATEB can email you a form on request.

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3. Recent FSA ‘Focussed’ Visit - Feedback

Recently an ATEB firm received an FSA focussed visit on ‘Selling practices, financial promotions, financial resources and overall compliance’. This article gives some indicators on the content and feedback from that visit. As you are probably aware, the FSA continues to conduct ‘house calls’ on IFAs although their preferred method of monitoring is ‘Desk based’. This is where the regulator is asking the firm to supply specific information to them, which is then scrutinised at a distance, and a detailed written reply issued.

During their ‘focused’ visit to the firm, the FSA requested information relating to:

• New business register
• Fact finds & Suitability letters
• Compliance officers report & Procedures
• Money Laundering, Financial and T & C records

Feedback:

It was the lack of feedback that was crucial. The FSA commented on only two things.

1. They asked for a small amendment to the firms business and compliance plan.
2. Although the firm has only one ‘active’ advising principal there is another shareholding principal. Consequently, the FSA wanted to see the advising principal supervised. However, the only real way to do this would be to have him supervised by an employee. Luckily, both principal and chosen employee had received detailed supervisor training and we could implement a system of supervision easily. If you think your firm may be caught by the same problem, ATEB bulletin 15 ‘T&C Supervision Requirements’ has more information on this.

ATEB view:

We must be doing something right!

Action required by you:

Reword your T&C plan / procedure to cater for the removal of the ‘Self Supervising’ principal and ensure that all relevant individuals have the necessary documented skills to perform the allocated role. This is a perfect lead in to article 11 on supervision training.

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4. FSCS annual levy 2003/04 Designated investments Sub-Scheme: £87.9m*

The FSCS has recently announced that the annual levy in the year 2003/04 will be a total of £87.9m*, this is a major increase and mainly attributed to the increased number of pension review cases going through the scheme. Amongst those firms in contribution block A16 the overall levy is split between product providers (85%) and investment firms (15%) i.e. those previously subject to the PIA Pensions Review Compensation Levy, with the amount payable based on the number of Phase 2 cases attributable to the firm. It is envisaged that IFA firms will be invoiced in July by the FSA who administer and collect the levy on behalf of FSCS.

ATEB view:

None, for information only

Action required by you:

ATEB clients should read this article in connection with ATEB practice bulletin 19 ‘Regulatory Fees and Levies Summary’ which summarises which fees and levies are due, why and when. *£80m of which relates to pension review compensation costs (A16 fee block payers). The FSCS had previously (November 2002) estimated this figure at £70m. The equivalent figure in the previous year was £50m.

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5. Drawdown ‘MOT’

You may have noticed that ATEB is a firm believer in a risk-based approach to compliance. We believe that business principals should, as a matter of routine, be aware of and assess the high or higher risk business written by the firm. This is exactly the sort of thing which the Compliance Oversight Function should be doing.

Drawdowns fall into this category and we believe that such cases should be reviewed annually. In effect, they should be given an MOT. This is particularly relevant in today’s difficult markets.

Example. Lets consider a ‘Smallish’ drawdown, say £100,000 (note that FSA believes that drawdowns of less than £100k, after tax free cash has been taken, are questionable, unless there are good, mitigating circumstances). Client is taking drawings somewhere between minimum and maximum GAD. For the first couple of years, the fund remained reasonably stable, but recent performance has seriously depleted the fund.

What does good ‘proactive risk management’ dictate?

Write to the client to briefly outline current situation and invite the client to contact you if they have any concerns. Using the example, it may well be appropriate to suggest that the client reduces to minimum drawings. Note that it may be difficult to do very much at all if the client is already drawing at minimum levels. Nevertheless, you are offering the client the opportunity to review and re-assess the current circumstances and requirements.

Potential problem: Now, what we often hear from IFAs is that “I don’t want to invite a complaint”. Yes, this is a possibility. But you could also call it sticking your head in the sand! A carefully worded letter should not raise undue concern for the client, but should provide comfort, knowing that you are monitoring the situation.

We’d be happy to provide input on any proposed letters, which should include more than a simple statement along the lines of “if you want to discuss the review pack you’ve received, give me a bell”! We suggest that the letter be brief, give some background information, explain succinctly why the drawdown was appropriate and invite a formal review. You do, however, need to highlight the potential problem; otherwise, you’re not mitigating the risk!

ATEB view:

A letter of this kind is very important because it mitigates the risk of any future complaint. It points out to the client that there may be a potential problem (although you don’t use those exact words) and hence if the client complains at some point in the future, any liability is likely to be reduced because the client did not take action when the problem was first highlighted. Any such letter from you, or a formal review, gives the opportunity to re-iterate the rationale behind the recommendation and, if the case was written some years ago, to ensure that the client is given documentation appropriate to today’s standards.

Action required by you:

Think about PROACTIVE RISK MANAGEMENT! The above principles can be applied equally to other situations for example AMP /NPIs recent decision to reduce the equity market risks in the UK Life Services Business. This is good business practice and we believe that the FSA feels the same way.

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6. FSA Looking at Capital Protected Products:

The FSA have concerns over the promotion of ‘Capital Protected Products’. They believe there are risks and issues for consumers which in some cases are not being adequately addressed.

‘Capital Protected Products’ are described as fixed term products designed to provide capital growth benefits with repayment of at least the original capital at the end of the term. The capital growth benefits are typically linked to the performance of a market index, to movements in the prices of shares or a basket of shares or a fund. The capital repayment feature generally provides for the investor to receive at maturity no less than the original capital invested.

We have covered the main FSA concerns in detail in the accompanying bulletin ‘ATEB practice bulletin 18’ which is available to ATEB clients.

ATEB view:

Remember, If something sounds too good to be true it probably is. There is nothing wrong with promoting these products, but IFAs need to be sure that they are not setting themselves up for a future claim by not disclosing all issues in a manner that is ‘clear, fair and not misleading’.

Action required by you:

We strongly suggest that if firms are recommending these types of product that the right amount of documented research is conducted and firm principals in particular have a clear and detailed understanding of how the products work.  This may involve requesting information in writing from the provider confirming all the hidden details and consequences in plain English. We do not think it will be sensible to offer these products on a ‘Direct Offer’ and would suggest that full compliance including a detailed fact find and plain English suitability letter will be more appropriate and safer.

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7. Data Protection Scam – Again!

ATEB first made firms aware of this scam last year (See ATEB bulletin November 2002). However, a number of firms have again received a ‘final notice’ recently. The fact is that all the firms that received their final notice are up to date with their payment of £35.00!!

Letters headed ‘final notices’ are being sent to businesses by a company claiming to be a Data Protection Agency.  These letters inform the recipient that they have not notified the fact that they hold personal data for individuals with the Information Commissioner.  They also provide a form to do this at a cost of £95.00! The Information Commissioner's Office has made it clear that this company is not entitled to act as a representative of their office.

ATEB view:

None, for information only

Action required by you:

If required, the cost of Notification is only £35.00. There is an easy to follow booklet that can be found under Notification on the Information Commissioners Website, which is www.dataprotection.gov.uk. Further information is available under a website article entitled, "Do not be misled", You can also contact the Information Commissioner at Wycliffe House, Water Lane, Wilmslow, Cheshire, SK9 5AF or alternatively contact your local ATEB consultant who will answer any questions on Data Protection you may have.

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8. E-Regulation - Looking for an easier life?

The FSA E-Regulation programme provides web-based applications which allow firms to send electronic submissions and receive an electronic response. These services are open to all regulated firms following initial registration.

Available services:

• Complaints Reporting - submission of the six monthly complaints reports
• Approved Persons - applications to perform controlled functions under the approved persons regime
• The Waivers service, enabling firms to apply for a modification of waiver of rules, will be available soon.

How to sign up:

If you would like to use E-Regulation, send a request by e-mail to the E-Regulation Contact Centre at E-Regulation@fsa.gov.uk

This should contain:

your full name; your Firm Reference Number (FRN); your Firm name; your business address including postcode; a contact telephone number; and  a contact e-mail address.

ATEB view:

None, for information only

Action required by you:

You can get further information from the E-Regulation Contact Centre. Telephone: 0845 606 9966

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9. FSA shows a particular interest in Grand fathered Advisers and Supervisors

Background:

The FSA is currently requesting information from individual firms on competent individuals grandfathered across from N2 without the appropriate qualification (i.e. Full FPC or equivalent). CP30 referred to the FSA reviewing Grand fathered Advisers and Supervisors at some future point. The time for review is approaching. The FSA doesn’t appear to have exact records and is attempting to locate the small number of advisers / supervisors that fall into this group. In a conversation with ATEB, the FSA explained that it was not beyond the realms of possibility that IFA and professionally authorised firms could receive a visit that would focus on the individual controls and records surrounding this particular group of individuals.

Key Issues:

• The FSA would examine firms' records of competence that would include
  CPD files, file checks, supervision, knowledge of FSA rules and other
  evidence of how that person remained competent.
• They will want to interview these individuals.

ATEB view:

No surprise here, we expect a similar review of back office staff soon.

Action required by you:

Prepare for a potential visit and interview. Be familiar with the FSA Handbook and your firm’s procedures. Ensure CPD and training records are up to date. Ensure that any work has been supervised, checked and documented.

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10. Outcome of consultation on general insurance regulation

Following extensive consultation legislation for the selling of general insurance will be laid before Parliament soon with the aim of securing Parliamentary approval before the summer recess. Extending the FSA’s remit will also implement the European Union’s Insurance Mediation Directive in the United Kingdom. This is an important step towards completing the single market in financial services and will enable sellers of insurance to compete in European markets.

Key outcomes of the consultation include:

• Travel insurance sold as part of a package will not be regulated, however this will be reviewed again in 2007.
• A decision on the regulation of extended warranties, which are contracts of insurance, will be taken once the Competition Commission has published its final report into the market.
• The appointed representatives regime will be applied to general insurance.
• The government will consult on giving the Financial Ombudsman Service powers to deal with customer complaints arising after FSA regulation is introduced, but which refer to insurance products bought prior to the introduction of regulation.

ATEB view:

It’s the last point above that is most worrying. This implies for example that where advice has been given prior to January 2005 regarding a non-regulated term case, a customer will have the right to have the advice assessed by the FOS. The Question remains, what standards will they apply and how far back will they go?  Hindsight is a wonderful thing as we continually discover!!

Action required by you:

ATEB have maintained for some time that you should treat all business the same whether it is regulated or non-regulated, you should continue to document all cases carefully giving full rational. More information on this article is available at http://www.hm-treasury.gov.uk/ Under ‘Press notice: 5 June 2003’

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11. Money Laundering – New Services

It is now possible to obtain evidence of identity for Money Laundering purposes on line.

Experian, the credit reference agency, are developing the service. There are data protection issues to overcome, but, in principle, what they are suggesting sounds feasible. It will avoid clients having to send important documents through the post and at least will give you another option. We will be investigating this further and will give you detailed information as it becomes available. Experian are also offering other services, for example a check on whether the client details that you hold remain accurate and up to date.

ATEB view:

None, for information only

Action required by you:

You may wish to visit their website at www.experian.co.uk for further information.

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12. Supervisory Training – 2-day supervisor qualification course

Reminder: If you employ investment advisers (anyone giving advice on insurance company products to members of the public) then you must have an allocated firm supervisor (or supervisors). For fuller information on whether supervisor training applies to you please refer to ATEB practice bulletin 15 on supervision and our February newsletter article 6. The need to have supervisor training is a relevant and up to date issue having been remarked upon during a February FSA visit.

Overview:

Day 1- overview (9.30am until 4.30 pm)

• Setting field sales process standards
• Consistent and accurate assessment skills
• Using an objective observation aid
• T&C Knowledge
• Overview of general T&C requirements on regulated firms.

Day 2 - overview (9.30am until 4.30 pm)

• Theory of coaching and training
• Constructing SMARTA development plans
• Giving consistent feedback
• Structuring one to ones
• Monitoring performance and training needs analysis

Who should attend?

• Qualified supervisors wishing to top up existing supervisor knowledge
• Newly appointed supervisors
• Supervisors who had previously been classified as ‘self supervising’ (under PIA)

Do I need to attend both days?

You may wish to attend only a single day at present; there will be other days later in the year.

Course details:

Dates:	Day 1 – Tuesday 2nd September and Day 2 – Tuesday 23rd September
Location:	Leyburn in North Yorkshire
Cost:	£150 plus vat per day per person

ATEB view:

Where relevant and suitable training has not been undertaken within firms it will result in a serious breach of the regulations and the consequences may be substantial. It is more than possible that the FSA will suspend the firm from trading until this requirement is met. Although we often quote the regulatory requirements, lets not forget that quality supervisor training will almost certainly have a positive impact on your business.

Action required by you:

Please let us know if you would be interested in attending by email or telephone. (Details follow). We will confirm exact course location and details in joining instructions prior to the course.

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Important Note:

The ATEB Newsletter is intended to provide general guidance on areas of compliance and T&C; however it is not a replacement for the main Rules and Guidance contained within the FSA Handbook. We welcome all feedback. If you have any feedback or questions relating to any articles then please direct them to your local ATEB consultant or the newsletter editor Steve Bailey email steve@atebconsulting.co.uk Unless you have consulted specifically (as part of a regular visit) with ATEB on a particular issue then ATEB Consulting accept no liability for any actions taken based on the information contained solely within the newsletter.

Contact Us:

ATEB Consulting
The Old Post House
29 Nedderton Village
Northumberland
NE22 6AX

T: (01670) 822984
M: (07703) 576951
E: steve@atebconsulting.co.uk
W: www.atebconsulting.co.uk