If you would like to read this newsletter offline click here for a PDF download. Note: You will need Adobe Reader to view this document.

1. ATEB Go Limited
2. Mortgage and General Insurance key deadlines for authorisation
3. Complaints Reporting - Deadline 30th April 2004
4. Quarterly ‘Pension Transfer’ Reporting - Deadline beginning of April
5. A ‘Menu’ for being open with consumers including feedback on CP166
6. Money Laundering Update
7. Capital resource requirements
8. Financial Promotions & SCARPS (PS 188)
9. Appointed Representatives & ‘Multiple Principals’
10. Section 155 of the Consumer Credit Act 1974 and the £5 Cap
11. Targeted email communications from the FSA
12. Complaints will be transitioned to the Financial Ombudsman Service (FOS)
13. Complaints - FOS briefing note
14. FSA issues new proposals for the fair treatment of with-profits policyholders

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	13	14
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	13	14
Director/Partner
Compliance / A&O Function
Sales Advisor
T&C Supervisor
Back Office
General Insurance	1	2	3	4	5	6	7	8	9	10	11	12	13	14
Director/Partner
Compliance / A&O Function
Sales Advisor
T&C Supervisor
Back Office

*Includes Mortgage arms of IFA and APF firms

1. ATEB Go Limited

Thanks to your committed support and the hard work of our consultants and support staff, ATEB consulting has grown steadily over the past few years. We are now in a position where it is beneficial to change our status from a partnership to a limited company. Many of you will have undergone similar change and are well aware of pros and cons.

We would like to assure all clients that this will only affect you minimally, in so much as the current banking arrangements will, unfortunately, have to change, but otherwise, it’s business as normal.

ATEB Business Solutions Limited will be taking over all the business activities of ATEB consulting and will trade as ATEB consulting, but also as ATEB IT Solutions (our IT support service).

If have any questions or queries however, please get in touch.

ATEB view:

None, for information only

Action required by you:

None, for information only

Return to Features List or Contact Us

2. Mortgage and General Insurance key deadlines for authorisation

	Mortgages	Mortgage & General (Includes Variation of permission)	General Only
First deadline   31 March 2004	Apply by the 31 March 2004 to qualify for an early application fee discount	Apply by the 31 March 2004 to qualify for an early application fee discount
Second deadline   30 April 2004	This is the deadline for submitting applications if you want to be certain that the FSA will process it for 31 October 2004 start date*	This is the deadline for submitting applications if you want to be certain that the FSA will process it for 31 October 2004 start date*
First deadline   31 May 2004			Apply by the 31 May 2004 to qualify for an early application fee discount
Second deadline   13 July 2004			This is the deadline for submitting applications if you want to be certain that the FSA will process it for 14 January 2005 start date*

* Under the Financial Services and Markets Act 2000 the FSA has six months from the date the application is received to make a decision on a complete application (where no information is missing) and 12 months to decide on an incomplete application (where information is missing).

ATEB view:

Don’t miss the deadlines

Action required by you:

Don’t miss the deadlines!

Return to Features List or Contact Us

3. Complaints Reporting - Deadline 30th April 2004

Next Complaints Reporting Period:

1st October 2003 to 31st March 2004 (Deadline 30th April 2004)

Two methods to report complaints data:

1. FSA electronic Complaints Reporting System

2. Paper based reporting form

For further information click on: www.fsa.gov.uk/complaints_reporting/

ATEB view:

None, for information only

Action required by you:

Decide which reporting method you will use and commence preparation of the paperwork now.

Return to Features List or Contact Us

4. Quarterly ‘Pension Transfer’ Reporting - Deadline beginning of April

Firms may be required to make returns to FSA every quarter.

There are no specific reporting dates, but most firms have adopted six-monthly returns in early January to coincide with 6 months after the end of the ‘transitional period’. Thus, quarterly return dates are the beginning of January, April, July, and October. 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). If you do not have any of these, then no report is due at this stage. (Further details in the ATEB Compliance Procedures Manual section 21)

Important Note: Remember ‘Pension Transfer’ also includes transfers from an occupational scheme to section 32.

ATEB view:

None, for information only

Action required by you:

If you need to send a report, then ensure that it is sent on time.

Return to Features List or Contact Us

5. A ‘Menu’ for being open with consumers including feedback on CP166

Background:

In the autumn of 2002, the FSA announced that it had decided to proceed with the removal of the polarisation restrictions and would be developing the so-called ‘menu’ approach to commission disclosure to help introduce more transparency into the cost of advice. To date, the FSA process of staged reform has seen three Consultation Papers (CP80, CP121, CP166). The most recent CP 04/3 explains in detail:

• FSA menu proposals
• Proposed final depolarisation measures and associated rule changes
• Feedback on CP166

Depolarisation:

The draft depolarisation instrument includes amendments to the FSA handbook

and transitional arrangements.  There are no significant changes to the proposals in CP166.  The options open to firms regarding the scope of advice and range of products which they elect to offer remain the same.  Only firms offering whole-of-market advice and a fee option can describe themselves as independent.

There are some minor amendments and points of clarification.  Most notable are that providers will be able to invest in all intermediary firms, not just 'whole-of-market' firms.  

IFAs advising on GPPs are not compromising their independence by advising employees on the merits of joining a scheme selected by an employer.  Reasonable indirect benefits may, in certain circumstances, include provider assistance with software of other computer facilities.

What is the menu?

The menu is a concise document which firms will be required to provide, subject to some exceptions, to private customers when they first seek advice on packaged products. All types of advisers in a depolarised world (that is, covering the whole market or connected to a single product provider or to a limited number of product providers) must use it. The menu will give consumers an up-front indication of the cost of advice, whether that cost is met directly by fees or indirectly through commission, or a combination of both. The menu will carry the ‘key facts’ branding and is entitled ‘key facts: A guide to the cost of our services’. It will have five main sections, providing consumers with information about the firm.

If the firm offers a fee option, this will be shown by way of the fee rates charged, and if the firm offers a commission option, it must include tables setting out the maximum commission that it will take for sales of products from within the specified packaged product groups. The tables will also include the average rate of commission charged for each product group by firms across the market as a whole, so that customers can compare this with the firm’s maximum. These ‘market averages’ will be prepared, published and updated by the FSA. To see an example of the menu, go to page 39 http://www.fsa.gov.uk/pubs/cp/cp04_03_annexes.pdf

What is the IDD?

CP166 proposed that, when approached by a private customer for advice on packaged products, a firm must give that customer an ‘initial disclosure document’ (IDD). This ‘initial disclosure document’ (IDD) would make clear whether advice was being offered on the products of a single provider, or on the products of a limited number of providers, or from across the whole market. The IDD would also invite customers to ask for a copy of the list, or ‘range’, of particular products on which advice would be offered. Firms will be required to give private customers a copy of their menu at the same time as they provide their IDD. Like the IDD, the menu will be based on a template, which will form part of the FSA rules. To see an example of the IDD, go to http://www.fsa.gov.uk/pubs/cp/cp166_appendix-e.pdf

ATEB view:

Its reassuring to know that we have the FSA keeping us all on the straight and narrow. Just think, where would we be without them?

Action required by you:

This consultation will close on 1 June 2004. The FSA will then review all the responses and amend their draft rules in the light of comments made. Expect the policy statement giving feedback on the consultation in the second half of this year, when they will also publish the final rules. There will then be a transitional period of six months, at the end of which all firms need to be in compliance with the new rules. CP04/3: Resource Page http://www.fsa.gov.uk/pubs/cp/04_03/

Return to Features List or Contact Us

6. Money Laundering Update

All firm will be aware of the importance of Money laundering. ATEB have covered the subject many times in recent newsletter articles and practice bulletins. This article is to remind you that the Money laundering Regulations have been updated in line with the Proceeds of Crime Act 2002. The new Money Laundering Regulations 2003 took effect on the 1st March 2004.

ATEB would remind firms which haven’t purchased the JMLSG guidance notes to do so by accessing the website at http://www.bba.org.uk/public/services/publications or calling

Vanessa Palmer at the BBA Publications Department British Bankers’ Association, Pinners Hall, 105-108 Old Broad Street, London EC2N 1EX. Information Line: 020 7216 8900 Direct fax: 020 7216 8920

As we have said on many occasions, this is an invaluable source of reference to help ensure that you meet the regulatory requirements.

Here is a quick summary of the main changes:

• P45s and P60s are not deemed official Inland Revenue documents and are therefore not allowed.
• * Exemptions – The Euro / Pound exchange rate is no longer set annually. When using the exemptions firms will need to decide which option to use in converting to pound sterling. (See ATEB procedures for more information)
• Additional documents that are suitable as evidence of identity have been added such as an EEA member state identity card and a blue disabled drivers pass.
• Shotgun certificates are now acceptable in addition to firearms certificate.
• The postal concession has been withdrawn. (Note: Little change, as most firms did not use this concession anyway).

* ATEB recommend that wherever possible firms do not use the exemptions.

Other relevant changes include Glossary changes to the definition of Money Laundering and the introduction of the Objective test of ‘reasonable grounds for knowledge or suspicion’ (this was covered in a previous ATEB newsletter October 2003)

ATEB view:

Quite simply a hugely important area. Do not underestimate the importance and do not lower your standards in obtaining evidence and monitoring transactions.

Action required by you:

ATEB have updated the Compliance Procedures Manual (CPM) section 7 with the required changes. Please ask your ATEB consultant to go through the changes with you as part of the regular visit.

Return to Features List or Contact Us

7. Capital resource requirements

A number of firms have asked us to clarify what the capital adequacy arrangements will be when firms which are already authorised receive their additional permissions to conduct general and / or mortgage business in January 2005 and November 2004. In summary:

• Capital resource amounts will depend on whether the firm will hold or control client money.
• The requirements for designated insurance business (investments bonds and Pensions etc) and Insurance and / or mortgage mediation are located in different sourcebooks.
• Firms need to establish both figures by referring to the detailed rules
• The higher of the two figures equates to the capital resource requirement of the firm.

ATEB view:

Do not expect the situation to stay static. There are still consultations ongoing in the area of capital adequacy and with the implementation of various European Directives expect more change at some point in the near future.

Action required by you:

Ensure that your accountant has been briefed on the relevant areas of the handbook. We have covered this important area in more detail in ATEB practice bulletin 24 which accompanies this newsletter. Speak to ATEB if you are unsure.

Return to Features List or Contact Us

8. Financial Promotions & SCARPS (PS 188)

This article will be relevant to those IFA firms which promote SCARPs, structured deposits or products which involve a risk to capital. Please read in connection with ATEB practice bulletin 23 which accompanies this newsletter.

As detailed in our newsletters in June & July 03 and ATEB practice bulletin 22, ‘CP188 Clarification and revision of financial promotion Rules and Guidance’ set out proposals for change in three main areas:

• The marketing of ‘structured capital-at-risk products’ (SCARPS);
• Financial promotions for ‘structured deposits’; and
• Clarification of some current financial promotion requirements, consolidation of existing guidance and removal of some out-of-date guidance.

Here are the key areas of change in brief:

1. The definition of a ‘structured capital-at-risk product’ (SCARP) has been finalised

2. Risk warnings have been finalised for SCARPS

3. Annual periodic statements have been introduced

4. An upgraded fact sheet - 'Capital-at-risk products' has been produced

5. The definition of a 'structured deposit' has been finalised

6. General financial promotion guidance and reorganisation updates have been added to the handbook.

ATEB view:

Be vigilant and organised in your approach if you are promoting SCARPS or similar products.

Action required by you:

ATEB have updated the ‘Risk Warnings & Disclaimers’ / Financial Promotions section of the CPM. Ensure that your systems and controls cater for the new requirements. Speak to ATEB if you are unsure. Key Reference Material: http://www.fsa.gov.uk/pubs/policy/04_03

Return to Features List or Contact Us

9. Appointed Representatives & ‘Multiple Principals’

Changes made to the FSA supervision manual will allow appointed representatives of General Insurance Brokers to have ‘Multiple Principals’

ATEB are aware of General Insurance Broker firms which have sizeable ‘introducers’ who currently use a variety of Broker firms with which to source and arrange business. These introducers in particular are doing ‘too much’ for them to use any of the available exclusions such as 72C [Provision of information on an incidental basis – see ATEB February newsletter]

In theory, these ‘introducers’ (as they are currently described) will be able to continue dealing with a number of General Insurance Brokers when the new statutory regulation bites in January next year. However, there is a catch! This is one of those situations, which sound OK in theory, but practically it could be very difficult to arrange. Therefore, in this article we have highlighted a couple of areas which we feel are important. The relevant rules are located at page 7 of: http://www.fsa.gov.uk/handbook/legal_instruments/2004/2004_09.pdf

The rules require a ‘lead principal’ to be appointed. The lead principal will have overall responsibility for issues such as handling complaints. The rules also talk about ‘cooperation’ and ‘sharing of information’ between principal firms. If you haven’t started communicating with the other potential principal firms, now may be the time. A ‘Multiple Principal Agreement’ needs to be in place before authorisation commences.

You may also wish to ask yourself the following questions:

• Do you really want to be involved in handling complaints on behalf of other insurance brokers which have poor compliance arrangements?
• Do you want them involved investigating your affairs?
• Who takes responsibility for approving promotions, T&C and overall compliance monitoring?
• Who funds the associated costs of additional compliance and legal advice?

Obviously, any firms entering into these agreements will need to be comfortable with the other Principal firm’s knowledge and application of the detailed AR regulations.

You may wish to check if there are indeed other brokers with whom your ‘introducer’ deals with. You should clarify the situation and ensure your introducers are fully aware of the implications of FSA regulation. Ultimately, a decision will need to be taken as to how they fit into the regulatory jigsaw i.e. Appointed Representative (AR), Introducer AR, directly authorised or whether they can make use of one of the exclusions available in the legislation. This decision needs to be taken very soon the deadline is 13th July 2004 to guarantee the FSA will process your application for the 14 January 2005 start date.

ATEB view:

Based only on our initial thoughts – we think that ‘multiple agreements’ will suit the larger companies which are able to take a commercial risk and have lawyers draw up detailed contracts. There is no doubt that single AR agreement will offer far greater control and profit. This is a business opportunity for firms to persuade their introducers to become single ARs from January next year (Agreed by 31st May 2004)

Action required by you:

Ensure that all you have agreed the basis under which your introducers will continue to introduce and that you have thought through the implications of this decision.

Return to Features List or Contact Us

10. Section 155 of the Consumer Credit Act 1974 and the £5 Cap

We were asked to clarify the situation around charging fees for arranging a mortgage, particularly where the mortgage does not complete.

Section 155 of the Consumer Credit Act 1974 places a cap on fees which a mortgage broker could charge to £5 where the mortgage does not complete. The FSA mortgage regime, however, does not reproduce this rule. Articles 21 and 22 of the regulated activities order (RAO) (the RAO contains the definition of what constitutes regulated activity) make consequential amendments to the Consumer Credit Act 1974.

The effect of those amendments is to exclude mortgage arranging and mortgage advice from the scope of ancillary credit business within the meaning of that Act.  It also disapplies section 155 of that Act in relation to fees charged by brokers in respect of introductions which constitute mortgage broking. ATEB have checked this with the mortgage code and, in a telephone conversation, the MCCB advised that firms could reword their terms of business. The MCCB suggested the following wording in addition to the normal explanation of fees: “Please note that we will charge this fee irrespective of whether the mortgage completes”

ATEB view:

This sits in with our view that good quality professional advice has to be paid for and is not ‘free’.

Action required by you:

If you intend to alter your fees accordingly, then we recommend a confirmation phone call to the MCCB be logged and recorded. ATEB would also recommend that this be drawn to the attention of the client in a declaration prior to signing.

Return to Features List or Contact Us

11. Targeted email communications from the FSA

The FSA has recently introduced an important new service which allows them to communicate relevant information to you via email. This is the first stage in a programme which will eventually cover a variety of different services including Press Releases, FSA Events and Industry Training alerts.

ATEB view:

A very useful service, although it would have been even more useful in late 2001!

Action required by you:

Register on http://www.fsa.gov.uk/ecrm/email_communications.html

Return to Features List or Contact Us

12. Complaints will be transitioned to the Financial Ombudsman Service (FOS)

The Treasury has recently confirmed that consumer complaints in relation to firms covered by the MCCB will be transitioned to the Financial Ombudsman Service (FOS). Customers of MCCB registered firms which become FSA authorised for mortgages after statutory regulation commences (31st October 2004), will now be able to take any future grievances about their mortgages – when purchased under the protection afforded by the Mortgage Code - to the FOS for resolution. The same principles apply to firms which are currently regulated by General Insurance Standards Council (GISC).

ATEB view:

Surprised that this was not included in earlier proposals.

Action required by you:

None, for information only

Return to Features List or Contact Us

13. Complaints - FOS briefing note

There is quite a useful FOS briefing note for firms involved with handling endowment complaints. It is entitled  “a briefing note for firms’ complaints about mortgage endowments” This can be found on:

www.financial-ombudsman.org.uk/publications/guidance/complaints-about-endowments.htm

ATEB have also added a new template letter to the CPM. This is to deal with complaints relating to pre 1988 business. This will be added at the next Compliance Procedures Manual update, however if you require an advance copy please let us know.

ATEB view:

None - for information only

Action required by you:

None - for information only

Return to Features List or Contact Us

14. FSA issues new proposals for the fair treatment of with-profits policyholders

The FSA has recently issued proposals relating to with-profits policyholders which include new rules and guidance on payouts, surrender values, market value reductions, closed funds and the process for reattribution of inherited estates.

Background

The FSA started its review of with-profits regulation in spring 2001. The initial review consisted of five issued papers, followed by a feedback statement in May 2002 with proposals for changes in the regulation of with-profits business. All publications relating to the with-profits review, including subsequent consultation papers, can be accessed at http://www.fsa.gov.uk/pubs/other/with_profits

These proposals, which are key to ensuring that with-profits policyholders are treated fairly, will introduce requirements including:

• Published target ranges for payouts
• Market value reductions (MVRs) should only be applied either if there has been a significant change in the value of the fund's assets or if a high volume of surrenders has occurred or is expected
• Restrictions on what firms can charge to their with-profits fund
• That compensation for with-profits policyholders to be paid first from any inherited estate and second from shareholder’s funds.
• On distribution of surplus, firms would have to consider whether the surplus exceeds what is necessary to support current and future business. If it does, then this points in favour of a distribution.
• Notifying policyholders within 28 days of a fund closure and submit a run-off plan to the FSA.

ATEB view:

The words ‘horse’ and ‘bolted’ spring to mind.

Action required by you:

None, for information only

Return to Features List or Contact Us

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