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1.
RMAR Update /Common Issues
2.
Pensions A Day – Don’t just concentrate on your “Gold” clients
3.
SIPP investment - what are the main “RISKS”?
4.
The Financial Ombudsman Service rejects late pensions review complaint
5.
Consumers should get compensation direct
6.
Market averages for the menu – Deadline for changes is 1st January 2006
7.
IFA fined £25,000
8.
FOS decision in favour of the IFA – There is hope yet!
9.
Treating Customers Fairly (TCF)
10.
FSA release a number of new client facing booklets
11.
Small Firms Pocketbook
12.
Speech by Clive Briault, Managing Director, Retail Markets, FSA
13.
FSA Geographic Visits
14.
Email Legends
15.
Mortgage & General Insurance Bulletin
16.
Financial Promotions for general and pure protection insurance
17.
FSA to push for simpler client documents
18.
Withdrawing net commission from the client bank account
19.
Money at third parties – discharging your duties as trustee
20.
Net settlement of trust bank accounts
21.
Removal of the audit requirement for small mortgage and general insurance intermediaries
22.
Written confirmation from auditors - 53 weeks deadline
23.
FSA looks for improvement in general insurance documents given to customers
24.
Insurance intermediaries breaching the rules relating to the provision of (IDDs)
25.
Common findings in IDDs
26.
FSA visit “high risk” mortgage firms and give feedback
27.
Feedback from FSA visits to sub-prime mortgage firms
28.
ATEB launch streamlined file checking service
29.
Broadband Internet and Remote Access
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:
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| *Mortgage (inc. IFAs) |
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| *Mortgage (inc. IFAs) |
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| General Insurance |
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*Includes Mortgage arms of IFA and APF firms
1.
RMAR Update /Common Issues
Last month the FSA acknowledged and apologised for the initial “teething problems” which occurred with the system for submitting the RMAR. Fair play to them, but I would have thought “drilling, filling, surgical and extraction problems” would have been a better description.
The FSA are closely monitoring submission rates and the effectiveness of the system. Any firm that misses its reporting deadline will be liable to a £250 administrative fee to cover the cost of chasing and ultimately enforcement action.
The FSA website now includes common issues which firms have been raising with them on integrated regulatory reporting, along with their comments. www.fsa.gov.uk/pages/Doing/small_firms/general/reporting/topten/
| ATEB view: |
| There is no doubt that the system is now working more effectively as a result of the amendments. It provides an efficient way for firms to complete and submit their reports. |
| Action required by you: |
| None, for information only |
Return to Features List or
Contact Us
2.
Pensions A Day – Don’t just concentrate on your “Gold” clients
Related article: ATEB news June 2005 article 15
The above article is very relevant and it’s vitally important that you read and acknowledge the contents. This article is simply to reinforce the importance of A day and to mention that firms should look to inform all relevant clients of potential changes and not just those whose business with the firm may have lucrative financial returns. We urge firms to think about this very carefully.
We would encourage firms to write to clients simply informing them of the potential impact of A day and record this fact. It may also be worthwhile sending a follow up letter just in case the original did not reach the recipient.
| ATEB view: |
| Approach this in the right way and you will be fine, it has the potential to go horribly wrong. |
| Action required by you: |
| Speak to ATEB if you require guidance. |
Return to Features List or
Contact Us
3.
SIPP investment - what are the main “RISKS”?
Advisers should not get carried away with the SIPPs euphoria and should avoid leaving themselves open to mis-selling and negligence claims. The excitement surrounding the new rules means there is a real risk that clients will make incorrect investment decisions. In such cases, it is likely that they will look to blame their advisers for any financial loss that results.
(R) - Residential property
Do not oversell this facility. The concern is that the tax and borrowing advantages of using the SIPP will be stressed regardless of whether the property fits into the pension plan.
Advisers will need to demonstrate they have explained the downsides of investing in property when it may be an overvalued asset, the problems of its relative illiquidity and the need to pay commercial rent if the investor or their friends and relatives want to use the property.
(I) - Inland Revenue
The Inland Revenue has made it clear that it they will be monitoring the new SIPPs regime for evidence of tax avoidance. Firms should promote the use of SIPPs pension benefits rather than tax, and should make it clear that the Revenue could introduce retrospective regulation removing tax benefits at any time.
(S) - Switching / Replacement / Churning
Advisers will need to record accurately the reasons for recommending a switch into a SIPP.
(K) - Keep with the limits
If the limits are exceeded then an income tax charge arises with a marginal rate of 55%.
If clients end up facing these charges they will undoubtedly question the advice they were given regarding the level of investment into the SIPP.
(S) Suitability - Unsuitable alternative investments
From A-Day, shares in unquoted companies and investments in art and residential property will be allowed into SIPPs. Advisers must be able to defend the suitability of the advice they give regarding the inherent risks of these assets and the need for diversification in an investment portfolio matched against the client’s requirements.
| ATEB view: |
Huge potential here for mistakes and mis-selling. |
| Action required by you: |
| Do not get carried away, be careful that you only advise clients who have the correct profile and consider the issues above. |
Return to Features List or
Contact Us
4.
The Financial Ombudsman Service rejects late pensions review complaint
An IFA firm had rejected a complaint about a pension transfer on the basis that they had followed the pension review procedure, the complainant had declined a review, and the case was therefore time-barred.
The FOS believed that the complaint made after the March 2000 deadline was within their jurisdiction. Following lengthy arbitration, the FOS has finally accepted that the case was time-barred under FSA rules.
The FOS decision in this lead case has implications for other cases where a complainant declined or did not respond to an invitation to request a pension review during the review period. The decision should put an end to compensation payments for advice given during the review period (1988-1994) which could have been considered during the review.
Other similar cases sitting with the Ombudsman are now expected to be dealt with on a similar basis.
| ATEB view: |
Whilst we expect the FOS to follow this precedent, firms should be aware that there is still a grey area for cases where investors claim that they never received an invitation to request a pensions review.
|
| Action required by you: |
| None, for information only |
Return to Features List or
Contact Us
5.
Consumers should get compensation direct
ABI and AIFA have been in discussion regarding how members should deal with complaints which come to them via complaint management firms ("ambulance chasers”).
The FSA statement published recently explains that good practice in this area would mean both accepting and handling complaints via third parties, and corresponding with such third parties as if they were the consumer, although this does not preclude firms from sending copies of correspondence to the consumer.
New guidance is being added to the ABI website on the handling of complaint management firms. This notes that firms should pay any mortgage endowment compensation direct to the customer rather than to an unregulated third party. However, firms do need to be mindful of their duty not to entice consumers to break any contract that may exist between them and the claims management company.
Return to Features List or
Contact Us
6.
Market averages for the menu – Deadline for changes is 1st January 2006
The market average figures for use in the menu ('key facts about the cost of our services') are reviewed on an annual basis. The FSA will announce any changes to these figures on 1 November 2005.
If the averages change, firms will be required to update the market average figures within their menu documents by 1 January 2006.
We envisage that the FSA will highlight any changes to the market averages on their website from 1 November and via an e-bulletin.
| ATEB view: |
Hope you didn’t pre-print too many of your menus back in June this year. |
| Action required by you: |
Discuss with ATEB on an individual basis, place reminder in your diary. |
Return to Features List or
Contact Us
7.
IFA fined £25,000
An IFA firm which tried to broaden its business structure without the necessary regulatory and compliance knowledge has been fined for multiple compliance failures.
| ATEB view: |
| The case highlights the need for senior management to fully understand the business they intend to be in and the compliance requirements. |
| Action required by you: |
| If you are interested in details of the case go to: http://www.fsa.gov.uk/pubs/final/cfs_independent.pdf |
Return to Features List or
Contact Us
8.
FOS decision in favour of the IFA – There is hope yet!
The article is included to give you an idea of the types of decisions and rationale used by the FOS.
Did the ball cross the line?
The referee signals a goal and the television cameras show the ball has not crossed the line. I often think of the Financial Ombudsman Service (FOS) in these terms, with the FOS adjudicator being the referee, the IFA the defending team and the client the attacking team. The camera represents best practice and the time of the sale. Sometimes though, in the eyes of the defending team, the referee makes the right decision, and he did on this occasion.
Complaint |
FOS Adjudicator Comments
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The risks were not explained and no warning of possible shortfall
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“I consider it reasonable to assume that someone would take care to ensure that they were happy with the terms and conditions of the contract they were buying, particularly when it is linked to their mortgage”
“An illustration provided …indicated a rate of return of 8.1% was required to repay the loan…”
“Considering the financial outlook at the time I do not believe the rate of 8.1% was too high…”
“ …I do not believe it would have been viewed as unattainable in 1990”
Referring to the content and warnings within the brochure and illustration, the adjudicator explains:
“I consider the illustration together with the brochure contained enough information to enable potential clients to make an informed judgement on whether or not to proceed”
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Led to believe there would be a surplus
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“In order to uphold this part of the complaint I would need to see evidence that the firm entered into a separate collateral contract with you” |
Not suitable, encouraged to take endowment because of cheaper premiums
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The customer explained in his endowment questionnaire that he was told the endowment was cheaper. The adjudicator states: “I am therefore satisfied that you were aware of the alternative repayment options that were available to you”
The adjudicator noted that there was more than one meeting with the firm and felt there was plenty time to clarify. He states “Additionally, I consider it reasonable to assume that someone would take care to ensure that they were happy with the terms and conditions of the contract they were buying, particularly when it is linked to their mortgage”
The client took a high loan to income ratio and held back sizeable funds as a safety net. The adjudicator explained that a more risk adverse person would have taken a lower mortgage.
|
| ATEB view: |
| Pleased that the FOS found in favour of the IFA. Not completely convinced by his rationale, they seem to completely change the tone of the letter to one where the complaint is upheld. Some fairly cutting and direct remarks!
I could easily have a different view, for example, in his occupation as a (manual working) technician in a car factory he wasn’t the sharpest tool in the box and certainly would not have learned about endowments via his job. Therefore I do not think he was suited by occupation. (Don’t laugh; I am only quoting previous FOS decisions). He held all of his money in cash; I could argue that he is risk averse. (That’s based on FPC and AFPC study material) I personally believe the whole issue of judging endowments before they mature and the inconsistent approach by the kids at FOS is a complete farce. |
| Action required by you: |
| None, for information only. |
Return to Features List or
Contact Us
9.
Treating Customers Fairly (TCF)
Related article: Article 21 ATEB News June 2005. We have also enclosed an information bulletin for clients on the subject of TCF with this newsletter.
The FSA expects the management of smaller firms to determine what TCF means for their business and decide what they need to do to deliver that. This need not be complex.
For example, we suggest that you set out some objectives such as:
The firm will aim to:
- sell products that are suitable to the needs, wishes and financial sophistication of our clients;
- ensure clients receive all necessary information about the service offered and on any products recommended, and that this is explained by us in a way that is understood
- handle complaints fairly.
Having set their objectives, the management should decide how (operational tasks) the firm will achieve them and how this will be monitored (management information MI)
The FSA focus on MI and performance measurement because they consider it important that management should be able to access MI to assess whether the firm is successfully meeting its TCF objectives. The MI that firms gather need not be complex or require expensive systems, but should be proportionate and sufficient to inform management whether the business is delivering TCF in the way they have defined it. Having the appropriate MI will help management know if they are delivering their strategies and help them identify gaps where further work is needed.
| ATEB view: |
This seems to be the new buzzword in the FSA. Nothing new though!
The key, as ever, is how you prove that you treat your customers fairly. We have a few ideas of how this can be done and we will no doubt be discussing it on our rounds with firms. |
| Action required by you: |
| ATEB is producing a template and guidance notes that can be used by firms (with ATEB) to construct a simple working document to help firms implement TCF. Seek guidance from ATEB or the FSA if you are unsure as to the requirements. |
Return to Features List or
Contact Us
10.
FSA release a number of new client facing booklets
The FSA have updated their pension publications in order to incorporate the forthcoming pension changes for A-Day. They have also updated the “guide for employers” to find out what they can, and cannot do, if they wish to promote their pension scheme to employees.
FSA guide to pensions 1: Starting a pension [PDF]
www.fsa.gov.uk/consumer/pdfs/retirement.pdf
FSA guide to pensions 2: Reviewing your pension [PDF]
www.fsa.gov.uk/consumer/pdfs/retirement_reviewing.pdf
FSA guide to pensions 3: Annuities and income withdrawal [PDF]
www.fsa.gov.uk/consumer/pdfs/annuities.pdf
Retiring soon - what you need to do about your pensions [PDF]
www.fsa.gov.uk/consumer/pdfs/retiring_soon.pdf
Promoting pensions to employees: a guide for employers
www.fsa.gov.uk/pubs/other/guide4employers.pdf
All the material is FSA copyright, although they are happy for you to distribute it to consumers, provided you:
- make it clear that the publication has been produced by the FSA (Financial Services Authority);
- do not state or imply that the FSA endorses any of the firm’s products or services;
- only distribute originals, not photocopies or reproduced versions.
Return to Features List or
Contact Us
11.
Small Firms Pocketbook
The FSA have produced a quick and easy guide to the key aspects of FSA regulation. This prints onto an A4 sheet and can be folded into a manageable size.
Return to Features List or
Contact Us
12.
Speech by Clive Briault, Managing Director, Retail Markets, FSA
Something in here for everyone, although this was a speech aimed primarily at general insurance brokers. It covers critical illness and payment protection transactions which are often conducted by mortgage brokers or IFAs. Here are a few snippets:
Linked sales of Payment Protection Insurance (PPI)
“In particular, we were concerned about the risk of poor or aggressive sales practices, unsuitable products, small print and complex terms, and the risks arising where these products are sold to consumers on the back of another transaction”.
“We also found that many products contain a wide range of complex exclusions (for example particular health problems are often excluded). And the broad descriptions of these policies provided at the point of sale ("cover for accident, sickness and unemployment") do not reflect the reality of the limited cover provided by many policies. Furthermore, the quality of training provided to staff and appointed representatives, and therefore their competence to sell PPI products, was found to be variable”.
Critical Illness
“We also found examples of unsubstantiated claims about aspects such as price, uniqueness and coverage. We also saw examples where key terms and conditions or exclusions (such as reviewable premiums, non disclosure of material facts, own-fault and survival periods) were not sufficiently prominent in brochures”.
“… plan to look at the selling practices of critical illness (which may include some mystery shopping) and will communicate our findings and next steps once we have completed this”.
Client Money
“We found significant issues in these firms which included deficits in client money accounts; problems with the client money calculations – including failure to identify third party balances; and issues around the correct trust status of client money accounts”
“Due to the significance of the concerns we identified we felt it necessary to extend our review to include the retail market. Over the next few months we will therefore be visiting a number of retail firms to look at this issue. We expect to report our conclusions early next year”.
Return to Features List or
Contact Us
13.
FSA Geographic Visits
As you all know, the FSA has implemented a series of Geographic Visits and as several ATEB clients have received visits, we thought it would be a good idea to give the rest of you an idea of the general format of these visits.
Generally, the firm is given about 4 weeks warning of a potential visit and the following documentation is requested:
- copy of the most recent Audit Report (AAR)
- copy of Complaints Register for the last 12 months
- copy of New Business register
- copy of Advertising log
- All disclosure docs, IDD/CIDD, ToB, Menu
On the day of the visit, two inspectors will arrive and will request:
- specific client files (perhaps 10)
- specific complaint files (2 to 3)
- at least 1 T&C file
Whilst these documents are being collated, the A&O Function (and perhaps other senior directors) will be interviewed. The purpose of the interview is to establish that the directors are in control of the business and the consultants and the areas covered include:
- your market place
- any commission enhancement deals with Providers
- split of fees and commission
- your plans regarding Pensions A day
- the key risks to your firm
- etc
The interview can last up to 1.5 hours depending on the answers given and it is conducted in a relaxed and friendly manner.
To date, all our clients who have received visits have passed with flying colours and, whilst we do not want to tempt providence or, indeed, blow our own horn, the inspectors seem to be very comfortable with the systems and controls being suggested by ATEB.
If you feel that a more detailed description of a visit is required, please speak to your ATEB consultant.
| ATEB view: |
| Stay organised, keep within SYSC as you go, don’t leave it until the last minute to prepare. |
| Action required by you: |
| None, for information only |
Return to Features List or
Contact Us
14.
Email Legends
We note that many firms still issue emails with no regulatory disclosures, address, telephone, disclaimer etc. In our opinion email should be treated the same as paper letterheads under FSA guidance. In the same way that you wouldn’t send a letter to a client on a blank piece of paper, your email legends should contain sufficient information.
| ATEB view: |
| Simple to update. |
| Action required by you: |
| Your IT support will normally show you how this is done; ATEB can supply a template if necessary. |
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15.
Mortgage & General Insurance Bulletin
Below is a link to a newsletter from the team dealing with small firms. It will be of interest in particular to the compliance function and senior management. The 2nd edition can be found at: www.fsa.gov.uk/pubs/newsletters/mgi_newsletter2.pdf
| ATEB view: |
| It does not take too long to read and offers excellent CPD and information to complement the firm’s procedures. |
| Action required by you: |
| The compliance function should read and record in his or her CPD diary. Speak to ATEB about any deficiencies that may be highlighted. |
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16.
Financial Promotions for general and pure protection insurance
This article impact on IFAs, Mortgage Brokers and General Insurance Brokers
FSA has published feedback regarding work they have done on the promotions for general and pure protection insurance, with a particular focus on critical illness insurance products.
They set out a few examples of common concerns regarding firms’ systems and controls surrounding financial promotions. Click on www.fsa.gov.uk/pubs/newsletters/fp_bulletin3.pdf for more information.
| ATEB view: |
| The FSA appear to be criticising and highlighting the processes of the insurance providers, however you should minimise your risk by ensuring that you follow the FSA guidance irrespective of the insurance company. |
| Action required by you: |
Ensure that all adverts and promotions that your firm approves meet with the basic guidance as issued by the FSA, in particular ICOB 3.8 and the clear fair and not misleading principles.
If you are promoting Critical illness or ASU make sure that you cover the downsides clearly in your Demands & Needs (or Suitability Letter) and give the client the opportunity to read the coverage. |
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17.
FSA to push for simpler client documents
The FSA is convinced that consumers must be protected against data overload and given clear, simplified information; consequently the FSA is reviewing several documents given to prospective clients.
The FSA says it is essential that customers can get adequate information, but this should just be the key facts rather than a load of data, some of which is irrelevant.
| ATEB view: |
| Sounds great in theory, not sure how it will work. Too many stakeholders, too many conflicting opinions, society overly litigious, too much industry paranoia, different levels of client needs and intelligence etc. etc. |
| Action required by you: |
| None, for information only. |
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18.
Withdrawing net commission from the client bank account
In the case of the statutory trust, it would be acceptable to withdraw, each month, the difference between commissions ‘due and payable’ to the intermediary less any commission to be reimbursed to clients (Net amount), provided it does not result in the firm using client money to provide credit for clients.
A firm would be providing credit in this situation if it made a commission refund from the client bank account without, say, transferring sufficient funds from its own office account.
Net accounting of commission is allowed under the non-statutory trust as this type of trust can be used to make advances of credit with client money balances.
| ATEB view: |
| Relating to the statutory trust, we know that the above happens in practice. |
| Action required by you: |
| Speak to ATEB if you feel that this article applies and we will discuss potential solutions with you. |
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19.
Money at third parties – discharging your duties as trustee
When a firm passes a premium to a third-party firm, it must keep a record of the amount.
This obligation arises from the duties a firm has as trustee of client money, which lasts up until a transaction is successfully completed through payment of the premium to an insurer (or an agent of the insurer) (see CASS 5.5.33G and CASS 5.5.80R). So, the money will remain client money of the firm (and so must be included in its client money calculation) until it reaches the insurer (or an agent of the insurer).
A firm's duties as trustee of client money can only be discharged once the intermediary has received notification that the insurer has received the premium and, therefore, the transaction has been completed successfully.
It is unlikely that a firm will hold claims money or premium refunds to third parties. This is because the rules treat such money as passing down a transaction chain, with each participating firm treating the next as its client, and not as a third-party firm it is placing client money with.
| ATEB view: |
| We know that in practice it is difficult to know when the insurer has received the premium. |
| Action required by you: |
| Ensure third party premiums are included in the money calculation until you are aware that your duties have been discharged. |
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20.
Net settlement of trust bank accounts
Currently, at the end of each month, many intermediaries pay the insurer (and possibly receive from the insurer) a sum equal to the difference between new premiums received less deductions for commission, claims money and refunded premiums.
In the case of an intermediary operating a non-statutory trust, net settlement is allowable as this type of trust can be used to make credit advances.
Those firms operating statutory trusts need to be careful, however. Net settlement is permitted under the terms of the statutory trust provided that undertaking such a transaction does not result in the firm using client money to provide credit for clients.
A firm would be providing credit in this situation if a claim or premium was reimbursed to a customer before the net settlement with the insurer had taken place and, by implication, before the firm had received the claim or premium refund from the insurer.
| ATEB view: |
| Relating to the statutory trust, we know that the above happens in practice. |
| Action required by you: |
| Speak to ATEB if you feel that this article applies and we will discuss potential solutions with you. |
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21. Removal of the audit requirement for small mortgage and general insurance intermediaries
Without wanting to go over old ground, see Article 10 August Newsletter, which explains the changes announced by the Department for Trade and Industry on 15 August 2005. This article is designed to reinforce the implications of the removal of the audit requirement for small mortgage and general insurance intermediaries in simple terms.
There are three main issues here
- If you are classed as a small firm (broadly, annual turnover not more than £5.6m) then you do not need to appoint an auditor of your financial statements.
- If you operate a non statutory trust, or more than £30,000 is held within your statutory trust at any time, you still need to appoint an auditor to report on your client assets.
- Previously, when calculating your capital resources within your FSA report (RMAR) you were only able to include audited reserves. This now conflicts with the new regulations which exempt small firms from the requirement to have their accounts audited. Therefore, the FSA has granted a 'general' waiver (known as a 'waiver or modification with consent') relating to the RMAR specifically. The practical effect of the modification is broadly that firms falling within its scope may include un-audited reserves within their capital resources, and do not need to have interim profits verified. For those firms coming within the scope of the modification by consent, the FSA will presume that individual firms consent to take advantage of it unless they inform them to the contrary.
More information can be found at www.fsa.gov.uk/pages/Doing/Regulated/Notify/Waiver/Consent/pru_sup.shtml
www.fsa.gov.uk/pages/Doing/Regulated/Notify/Waiver/pdf/direction_pru9.pdf
| ATEB view: |
| Sensible and fair. |
| Action required by you: |
Any firm wishing to take advantage of the modification must satisfy the conditions set out in the direction. These are that:
- the firm agrees that the FSA may presume that it has consented if it is within scope;
- the firm must keep a record on its file to the effect that it has consented to the modification; and
- the firm must notify any third party who may be affected by the modification of the fact that the firm has taken advantage of it. Affected third parties may include suppliers or PI insurers under whose contracts a breach of FSA rules gives rise to a breach of contract or a right to terminate.
|
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A firm may only operate a non-statutory trust if it can meet the conditions set out in CASS 5.4.4R (1) to (5). One of those conditions is that it receives written confirmation from its auditors that it has appropriate systems and controls in place to manage its client money account.
The firm must obtain, and keep current, written confirmation (report) from its auditor that it has in place systems and controls that are adequate to meet CASS 5 requirements. This report requirement will also apply to firms operating statutory trust accounts, which hold more than £30,000.
The period covered by a report must end not more than 53 weeks after the period covered by the previous report on such matters, or, if none, 53 weeks after the firm is authorised or becomes a firm to which a client assets report applies.
The above will not apply to “exempt intermediaries”, an FSA term that describes broadly an insurance intermediary that operates a statutory trust account which never exceeds £30,000 at any time during the financial year.
| ATEB view: |
| It is likely that most firms will choose the first period as 14th January 2005 to their accounting reference date. |
| Action required by you: |
Do not miss the deadline and speak with your accountant if you are unsure.
|
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Providing consumers with simple, clear and understandable information about products is a key part of the FSA general insurance regime. A recent survey by the Financial Services Authority identified problems with policy summaries and Key Facts documents, as follows:
- Poor quality of style and presentation, making it difficult for customers to read and understand the documents;
- Not all the required information was included. For example, the cancellation period was frequently omitted from the policy summaries;
- Significant and unusual exclusions either omitted or not given due prominence;
For some products, the description of the product was frequently too complex or obscurely worded to be meaningful to a customer.
| ATEB view: |
| We have to concur with the FSA in that much literature we see does not seem to fit the FSA criteria. Expect to see some heavy fines imposed on general insurance companies for snoozing whilst the rules were handed out! |
| Action required by you: |
None, for information only
|
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24.
Insurance intermediaries breaching the rules relating to the provision of (IDDs)
A recent survey conducted by the FSA found that many medium and small sized insurance intermediaries were not complying fully with the rules relating to their provision of Initial Disclosure Documents (IDDs) to customers. The FSA found that 62% of IDDs reviewed did not comply fully with FSA requirements. Common errors included:
- omitting the FSA Keyfacts logo
- making minor changes to the FSA prescribed wording, or
- including descriptions of services or information that the FSA does not require firms to provide.
There were further examples of errors which were potentially misleading such as providing inaccurate or no details about access to the Financial Services Compensation Scheme or the Financial Ombudsman Service.
| ATEB view: |
| Interesting that insurance intermediaries are using IDDs because most of the firms we have had contact with so far are using TOB instead. Anyway, I looked at a new TOB last week for a non ATEB client and it scored 1 out of 10, omitting some essential and mandatory information, never mind the subtleties and small print issues. I think for these companies mentioned in the FSA survey they have “fallen at the first”. |
| Action required by you: |
None, for information only
|
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Earlier this year the FSA conducted a review of a sample of lenders' and intermediaries' IDDs and KFIs, to find out whether firms are producing mortgage disclosure documentation in line with the rules. The FSA published the high-level results of this work on their website in May 2005, in a factsheet for mortgage intermediaries. They have since published some more detailed feedback on the results to help mortgage intermediaries review their IDDs.
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The FSA visited 51 mortgage firms across the country, looking at selling practices and training and competence. A number of these firms were identified as ‘higher risk’ because of information gathered when the firms were authorised. They also visited some firms not previously registered with the Mortgage Code Compliance Board. The overall findings were encouraging because half had no significant failings. Below is some of the compliant practice that the FSA found:
- The management’s strong understanding of their firm’s obligations under MCOB
- Ongoing training taking place
- Evidence to demonstrate why mortgages were recommended, i.e. suitability letters
- Evidence that product research is conducted, with printouts from sourcing systems on file and comprehensive file notes.
- Sufficient client information obtained when making mortgage recommendations, such as know your client information that fully takes into account the needs and circumstances of customers.
- Initial disclosure documents and key features illustrations were accurate and issued in a timely manner.
Non-compliant practice represented fairly much the opposite of the above. In a smaller number of firms the FSA found serious problems and referred firms to their enforcement division, with a view to ceasing their regulated activities and others were issued private warnings.
| ATEB view: |
| Later this year the FSA will follow up their findings and check how mortgage firms are keeping to the requirements. Your firm may be selected to take part, so you should familiarise yourself with the above findings and assess how your firm would measure against them. |
| Action required by you: |
The FSA found encouraging results overall. You can read the results of the project at: www.fsa.gov.uk/pages/Doing/small_firms/mortgage/practice/post_authorisation_project.shtml
|
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Recent feedback in this area was not good, there were too many cases where firms were unable to show that they had followed the required procedures relating to suitability when advising on these mortgage contracts.
Three firms were identified as potentially assisting customers to obtain a mortgage where their income would not meet the lender's criteria, for example by inflating income on the application form. These firms have been referred to enforcement for further investigation.
Although the visits found that 58% of firms intended to review a customer’s sub-prime product at some point in the future once their credit profile had been rehabilitated, there were problems, as follows:
- in 60% of cases, insufficient information was obtained about the customer in key areas relating to the sale of sub-prime products;
- in 80% of cases, there was lack of evidence to show how the recommended sub-prime product met the customer's needs and circumstances; and
- in 67% of those cases which involved debt consolidation, firms could not demonstrate that they had taken account of the additional requirements related to debt consolidation mortgages and thus it was unclear whether the recommendation was appropriate.
A further review of small firms active in the sub-prime market is planned for the first part of next year. The FSA is also currently conducting a review of small mortgage firms' practice with regard to the self-certification market and plans to publish its findings on this in the autumn.
| ATEB view: |
| Sub-prime is a growing area of the mortgage market and the FSA have identified it is a priority area for mortgage supervision. We expect to see a great deal more enforcement action next year. |
| Action required by you: |
See the examples of good and bad practice in the following Briefing Note
www.fsa.gov.uk/pages/Doing/small_firms/mortgage/practice/sub_prime.shtml |
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Do you conduct and record regular file checks? If not you should be. Forgetting the FSA rules for a second, this is a great way for management to stay in touch with the quality of advice that customers of the firm receive.
As a rule of thumb (risk based may increase or decrease this figure), you should be looking at 10% of files so, for example, firms producing 50 new cases a month should be checking at least 5 cases per month.
What will we do?
- Identify general trends and potential training & development requirements.
- Identify important specific issues on individual files.
- Check that standards are being maintained
- Check to see that the adviser has communicated a balanced view and that important issues and downsides have been explained clearly
- Produce a report summary and Individual file check feedback with any trends
Remote Service
The service can be done remotely by using a courier service.
Note: This service is additional to any ad hoc checks that ATEB may conduct as part of its regular visit.
| ATEB view: |
| This is cost effective service that will assist firms in identifying problems now, rather than identifying these later and incurring additional expense. |
| Action required by you: |
If you would like more information on this service please email us.
|
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Over the last few years since the introduction of affordable high speed internet access, broadband has become the standard in most businesses and homes. When broadband was first introduced every ISP (Internet Service Provider) was offering the same standard 512Kbps (1/2 Mbps) speed line. However, if you have been involved in the procurement or overseeing of a broadband line recently, you will have noticed that broadband now comes in a variety of speeds. This increase in speed is being driven even further with the arrival of LLU (Local Loop Unbundling) and competing Cable companies. Some broadband providers are now able to offer speeds up to 24Mbps (48x faster than conventional broadband).
With these new speeds now available and the increase in competition in the broadband market is it not time you considered whether your business is getting value for money from its broadband supplier? You may be able to increase your broadband speed without any extra cost, or reduce costs by moving to an alternative broadband supplier.
Another positive effect of the increase in broadband speed is the viability of remote access to your office computer network from home. There are a variety of VPN (Virtual Private Network) solutions available which could allow you to work from home without having to upgrade any of your existing hardware.
Some of the IT services ATEB IT Solutions offers include:
- Pro-active IT Infrastructure Maintenance
- Callout Support Packages
- Network Installation & Upgrades
- Back Office System Installation & Integration
- Remote Access (VPN) Installation
- Microsoft Operating Systems/Office Applications Licensing & Consultancy
- Domain Based Email Systems
- Server Installation & Maintenance
- Wireless Network Design & Implementation
- Disaster Prevention/Planning
- Website Consultancy
- Broadband Installation
- Software/Hardware Procurement
| ATEB view: |
| With more and more business transactions being carried out online, you could save time/money with an increase in internet speed. You may also be able to save costs by changing your broadband supplier. |
| Action required by you: |
If you believe we could be of assistance with any IT related issues you may have, why not arrange for a free initial consultation which can include a complete system audit.
To arrange such a visit contact either your ATEB consultant or David Anderson directly on 07734 459 913 or email: david.anderson@atebconsulting.co.uk
|
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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
