Investment Firms
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1. Treating Customers Fairly Management Information Deadline - 31st March 2008
2. TCF – The initiative continues and intensifies
3. Deadline for implementing ICOBS Rule changes: 6th July 2008
4. Information Security
5. FSA produce “Top Tips” to RMAR completion
6. Appointed Representatives – Good Money or High Risk?
7. Systems and controls – proposal to extend the ‘common platform’
8. Cancelling your authorisation or varying your permission – 31st March deadline
9. RMAR section J reporting schedule changes – reminder
10. Retail Distribution Review – Interim report due April 2008
11. FSA priorities for small retail intermediaries (Thematic Plan) 2008/09
12. Caveats and signatures don’t always work – FOS decision
13. Simplifying Disclosure: ‘Services and Costs Disclosure Document’
14. Money Laundering Regulations 2007 - Reminder
15. ‘Unfair’ Financial Ombudsman Service (FOS) case fees – The tables are turned!
16. FSA keeps RU 64 rule (at least as suitable as a stakeholder pension)
17. Client Satisfaction Surveys
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?
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1.
Treating Customers Fairly Management Information Deadline - 31st March 2008
You should have appropriate management information or measures in place by the end of March 2008 to test whether your firm is treating your customers fairly.
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2.
TCF – The initiative continues and intensifies
Recently, ATEB attended a seminar held by the APCC (Association of Professional Compliance Consultants) and representatives of the FSA were present. The topics covered included Financial Crime and TCF.
During our discussions on TCF, it was again emphasised by the FSA the absolute necessity of all member firms to implement their own TCF protocol. This subject is not going to disappear as other initiatives have done; it is very much an ongoing issue and one which the FSA will be pursuing aggressively.
It was again made clear that the FSA expects every member to have moved significantly on this issue. Two Assessment Teams have been created in the FSA and, as we mentioned in our December 2007 Newsletter, they will be contacting members shortly (by phone or face to face) for a conversation of up to 1 hour with, for example, the Compliance Function. Thereafter, up to 25% of these firms will be visited.
So - Have you set up your TCF systems based on the 6 Outcomes?
- Have you included the key drivers of Leadership, Strategy, Decision Making, Controls, Recruitment & T&C, and Reward?
- Can you show evidence of Delivery?
- Have you, eg, issued a questionnaire/survey to clients?
- If so, what have you done with the results?
- Do you regularly produce KPIs relevant to TCF?
- If so, what do you do with them?
| Ateb view: |
TCF is a culture thing and embraces every aspect of your business. Don’t be caught out by the FSA:
- It’s good for your firm and
- It’s good for your clients
|
| Action required by you: |
Be prepared for a visit or a telephone call. If you would like ATEB to help you prepare, then simply let us know by email or telephone. |
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3.
Deadline for implementing ICOBS Rule changes: 6th July 2008
The new Insurance Conduct of Business sourcebook (ICOBS) was published on the 6 January 2008. They focus on the high level outcome of protecting consumers, and less on specific and detailed rules. Key impact areas are:
General insurance products:
- Some detailed rules on communications with clients, claims handling and excessive charges to retail customers have been removed.
PPI and pure protection contracts (term, income protection and critical illness insurance):
- Firms must explain orally to customers in non-advised sales that the customer is solely responsible for deciding whether the policy is suitable for their needs.
- Firms must tell customers orally about the main characteristics of a policy (significant benefits, limits and exclusions, duration and price) during sales conversations, in a way that does not overload the consumer, before the customer makes any decision on a purchase.
The FSA have also added rules for PPI, in areas such as eligibility checks, improved oral disclosure and longer cancellation periods.
| Ateb view: |
Although, this will mean more flexibility for firms, the FSA will require that the same high standards of conduct remain. The FSA have put a great “spin” on their principle based regulation, however it worries ATEB greatly because, in our view and possibly cynically, it’s the FSA’s method of opting out. The fact remains, the FSA cannot cope with the current complexities of the rules. We suggest keeping a copy of the old detailed rules close to hand because it’s these rules that one day they may try to hang you with! |
| Action required by you: |
All firms selling general insurance products will need to understand and comply with the new requirements in order to ensure they are treating their customers fairly. ATEB is updating its web based manual to cater for the changes and hope to have the revised sections posted within the next few weeks.
Policy statement reporting on the main issues from or consultation and detailing the new rules: www.fsa.gov.uk/pages/Library/Policy/Policy/2007/07_24.shtml |
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4.
Information Security
The FSA sees arrangements for information security as falling under Principle 3 – “A firm must take reasonable care to organise its affairs responsibly and effectively, with adequate risk management systems.” Additionally, there is the risk that data may be used for financial crime.
We would therefore urge firms to consider the following:
- Have you appointed an Information Security Officer within your firm?
- Are you confident that anyone processing personal data in your firm is complying with the eight enforceable principles of good practice?
- Are your clients made aware of the identity of the data user or users and any uses to which personal data will be put and any proposed disclosure of data to third parties?
- Are you confident that all staff maintain utmost confidentiality of any information acquired by members of the firm regarding clients, potential clients, or records kept?
- When giving information to a client, particularly by telephone, do your processes provide that the client’s identity is verified?
- Are you confident that your records are correct and kept up-to-date, bearing in mind that third parties (such as the FSA, Ombudsman or Courts) may need to inspect them?
- Do you understand ‘Subject Access Requests’ and how to deal with them?
- Do you maintain an up to date ‘Suppression List’?
- Are you confident that all members of staff are vigilant enough to make sure that confidential data is not seen by unauthorised persons?
- Have all staff been adequately trained on information security procedures?
Obviously you need to answer ‘yes’ to all the above !
| Ateb view: |
This forms part of TCF and we expect the subject of ‘information security’ to become more talked about in coming months. |
| Action required by you: |
We have updated Section 4 of the ATEB web based manual to cover these areas. We suggest that you log on and download the latest version. You can then circulate to staff, decide gaps and implement a policy. The Information Commissioner’s Office (ICO) has a wide range of information, guidance and training media for firms. The ICO can be contacted as follows:
Website: www.ico.gov.uk
e mail: mail@ico.gsi.gov.uk
Helpline: 01625 545745 |
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5.
FSA produce “Top Tips” to RMAR completion
The FSA are still concerned that many firms still do not complete their RMARs correctly. (Wonder if Northern Rock falls into that category?). The FSA have, therefore, put together a guide that highlights areas that small firms have most problems with and have made this available on their website.
| Ateb view: |
Overall, I think the guide tends to answer questions that we already know the answers to, rather like the RMAR help text. Also, interesting that the guide currently contradicts ATEB’s understanding of completion of section I. We will, therefore, need to go back to the FSA and confirm which answer is correct - the one they gave us 2 years ago or this one! |
| Action required by you: |
Notwithstanding the above, we would still recommend that you read through this document which can be found at:
http://www.fsa.gov.uk/pages/Doing/Regulated/Returns/IRR/pdf/RMAR_AppendixH.pdf
Also of interest will be:
http://www.fsa.gov.uk/pages/Doing/Regulated/Firms/help/rmar/index.shtml
You can also access a facility for calculating additional capital requirements due to higher excesses on your policy. |
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6.
Appointed Representatives – Good Money or High Risk?
If you have an appointed representative (AR) firm that makes sales on your behalf, you should be aware that you remain responsible (as their principal) for the sales they make and the advice they give. It is essential that firms with ARs have good monitoring and controls to ensure their
ARs are meeting FSA requirements and are treating customers fairly.
A recent FSA project, which looked at mortgage, investment and general insurance firms (mainly small, but with some larger firms as well), highlighted some poor practice.
The FSA noted the following key problems which posed a real risk to consumers.
- Over recruitment
- Lack of ongoing monitoring of products sold and advice given
A ‘free for all’ is great for business, but not so great if you get a visit from the FSA. The issues uncovered can be summed up as inadequate control by principal firms over their ARs.
Don’t forget the March and December TCF deadlines the FSA have set for all firms include ARs as well as directly authorised firms. Certainly, firms that don’t make this deadline can expect the intensity of the FSA supervision and enforcement action to increase.
| Ateb view: |
It may be worth thinking carefully about income splits with your ARs. This needs to be sufficient to allow adequate resource to be allocated to your ARs and this, in our opinion, is the main reason for the problems now faced by principal firms. |
| Action required by you: |
All principal firms should be acutely aware of the poor practice the FSA has found and ensure that their firm’s appointed representatives are treating their customers fairly.
To help, the FSA have an updated factsheet available on their website.
www.fsa.gov.uk/Pages/Doing/small_firms/general/appointed_reps/index.shtml |
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7.
Systems and controls – proposal to extend the ‘common platform’
OK, let’s start with the FSA jargon ‘common platform’. In line with their move to principles-based regulation, the FSA are proposing to create one common set of very high-level provisions (i.e. a ‘common platform’) for all firms, which can be applied flexibly and proportionately.
Introducing the ‘common platform’ will mean all small retail firms having to comply with the same chapters 4 to 10 of the FSA Senior Management Arrangements, Systems and Controls (SYSC) sourcebook. Personal Investment firms, Insurance Intermediaries and Mortgage Brokers are currently subject to chapters 2 & 3. (The exception to this would be investment firms subject to the recent MiFID legislation already have to adhere to chapters 4 to 10). The proposals will also remove the need to meet the requirements in SYSC chapters 2 and 3.
SYSC sets out the responsibilities of directors and senior management of regulated firms. It builds on the third of our Principles for Businesses: “a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems”.
The changes will bring in some new requirements for firms in the areas of outsourcing and managing conflicts of interest – but apart from these, firms that comply with their existing provisions in SYSC 2 and 3 now, the FSA have said, will not need to change their behaviour when moving to the ‘common platform’.
| Ateb view: |
At this stage, we feel that it will not affect most small firms too greatly; although any significant differences will be highlighted and included within our web based Compliance Manual. |
| Action required by you: |
The consultation will close on March 19 and the FSA plans to publish a feedback statement in the third quarter of 2008, with a view to implementing the proposals, if confirmed, on October 1, 2008. SYSC Consultation Paper:
www.fsa.gov.uk/pages/library/policy/CP/2007/07_23.shtml |
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8.
Cancelling your authorisation or varying your permission – 31st March deadline
If you want to cancel your authorisation or vary your permission before the next annual fees are due, you must apply to do so before 31 March to avoid paying full annual fees for 2008/09.
If you apply after 31 March, full annual fees will be payable as there are no pro-rata arrangements or refunds of fees.
The FSA have stated that cancellation applications received after 31 March will only be approved if you have received and paid your annual fee invoice.
| Ateb view: |
None - for information only. |
| Action required by you: |
Speak to ATEB or the FSA if you are unsure – the clock is ticking. |
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9.
RMAR section J reporting schedule changes – reminder
Is your accounting reference date between 1 February and 31 August inclusive?
If ‘yes’, you should note the changes to the reporting schedule for section J set out in the FSA consultation paper CP07/17.
Since the introduction of the RMAR, the FSA have used the data collected electronically from section J to calculate the fees and levies payable by firms in respect of the FSA, the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS).
The FSA feel that the current schedule is difficult to follow and they have dealt with a high number of queries from firms asking them to clarify the correct reporting date.
They are proposing that all firms with an ARD between 1 February and 31 August (inclusive) will no longer be required to complete section J in their half-year-end return, and, instead, must complete section J in their year-end return; so all firms submit fees data on their year-end return.
| Ateb view: |
If you do not send the right figures you will risk at least a fine. |
| Action required by you: |
Click on : http://www.fsa.gov.uk/pubs/cp/cp07_17.pdf and go to page 41 of 172 and double check Table 4.2: Reporting schedule for section J on RMAR |
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10.
Retail Distribution Review – Interim report due April 2008
The FSA are going through all the responses they have received, and will publish an interim report in April 2008, with a full feedback statement in October.
| Ateb view: |
Let’s hope that common sense prevails! |
| Action required by you: |
None - for information only |
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11.
FSA priorities for small retail intermediaries (Thematic Plan) 2008/09
The FSA have highlighted the following areas as priorities for 2008
- Quality of advice processes
Still widespread significant weaknesses in financial advisers and mortgage brokers
Enforcement action already taken against a number of firms in this area
- Payment protection insurance
FSA will focus attention on those firms operating in the retail sector.
- Controls over Appointed Representatives (ARs)
Principal firms do not have adequate controls in place.
Focus on firms that specialise in advising on ‘right to buy’ property
FSA will be checking application of new ICOBS requirements.
Focus will be on “transfers”
Follow up of findings of exploratory work last year
FSA looking to assess the systems and controls within mortgage firms
Firms that continue to submit poor returns will be subject to closer supervision.
| Ateb view: |
No doubt the above are likely to be main topics for discussion over coming months. |
| Action required by you: |
If you feel that you may have gaps in the above areas or would like to discuss any of the above areas, let us know. |
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12.
Caveats and signatures don’t always work – FOS decision
A complainant alleged that a stock broking firm led him to believe it would actively manage his investments but then failed to do so. He said he was attracted to this type of service because his work entailed a large amount of overseas travel and left him little time to look after his investments.
No prizes for guessing what happened next. The complainant noticed the value of his investments had fallen very considerably and, because the firm had made no changes to the value of the portfolio since inception, he complained.
The firm simply referred him to the terms and conditions he had signed. These stated that the firm was under no obligation to monitor his investments or provide ongoing advice.
In view of the extent of the complainant’s overseas travel, FOS thought it was plausible that he would have been attracted by the prospect of having his shares actively managed and, therefore, upheld the complaint.
| Ateb view: |
Worrying on the face of it, but without ALL the evidence it’s difficult to call. |
| Action required by you: |
| Your systems and risk profiling has to be accurate and, as part of your TCF commitments, you should pinpoint clients’ expectations very carefully indeed. The FOS article can be found at: http://www.financial-ombudsman.org.uk/publications/ombudsman-news/67/67.pdf |
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13.
Simplifying Disclosure: ‘Services and Costs Disclosure Document’
The FSA have recently published a Consultation Paper on the subject of simplifying disclosure. This consultation seeks views on their proposal to introduce into guidance a new disclosure document to replace the existing IDD and Menu. This new single disclosure document, the ‘Services and Costs Disclosure Document’, will be less prescriptive and allows for more free text.
To help firms, the FSA will provide templates and update the ‘build your own’ tool on their website, although firms have the flexibility to develop their own disclosure material if they wish.
Subject to the consultation’s findings, the new guidance will be incorporated into COBS and take effect from 6 August 2008.
There will, however, be a transition period until 31 August 2009 for firms who wish to continue to use the IDD and Menu until then.
| Ateb view: |
If firms go for an individual approach it could get quite messy from a compliance perspective. At this point in time, we would recommend that firms stick with the FSA tools and templates and don’t detour too far away from the core guidance. It’s another ‘long piece of rope’ in our opinion. ATEB will come up with a suggested document that fits within the spirit of the regulations and if firms would like to spend time and resource having bespoke documents checked and developed (although we guard against this) we would be able to support this for a proportionate fee. |
| Action required by you: |
We encourage all firms to read the CP and provide the FSA with views by 19 May 2008.
The consultation paper can be found at:
http://www.fsa.gov.uk/Pages/Library/Policy/CP/index.shtml |
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14.
Money Laundering Regulations 2007 - Reminder
The Money Laundering Regulations 2007 implement the Third EU Money Laundering Directive.
This was introduced to update European legislation to ensure it is in line with international recommendations, especially those affecting anti-money laundering and counter terrorist financing measures.
Much of what the Regulations require was good practice under the previous regime. However, the Regulations introduce a risk based approach to anti-money laundering and other changes that will affect financial advisers. These include:
- Monitoring – there is now an express requirement for all firms to conduct ongoing monitoring of a business relationship
- Customer Due Diligence (CDD) – the Regulations introduce more detailed requirements
ATEB has updated its web based manual with the recent changes which came into effect on 15 December 2007.
| Ateb view: |
A vital area of regulation that cannot be overlooked. Overall, however, the changes will not involve major change for you. |
| Action required by you: |
The MLRO should access the ATEB web based manual and re-read the procedures and accompanying documents (risk based approach) to ensure familiarity with requirements. |
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15. ‘Unfair’ Financial Ombudsman Service (FOS) case fees – The tables are turned!
The FOS had brought a case against a small IFA firm for refusing to pay four case fees of £360 each. The firm had refused to pay the fees as a way of challenging the FOS’s practice of charging firms a fee even when a complaint against them is rejected. A County Court judge has ruled the FOS was wrong to charge an adviser a case fee when the case was rejected by the FOS. The judge commented that it was “unfair in principle and in practice” and that “no reasonable public body would maintain and enforce such a rule.”
| Ateb view: |
The ruling does not alter the legal requirement on all other businesses to pay case fees to the ombudsman service, where appropriate. However, be prepared for higher annual levies to compensate if FOS do indeed stop charging these case fees. |
| Action required by you: |
None - for information only |
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16.
FSA keeps RU 64 rule (at least as suitable as a stakeholder pension)
This is the rule that states you must say WHY the personal pension or SIPP is at least as suitable as a stakeholder pension.
In June 2005 the FSA published Consultation Paper 05/8 (CP05/8) Suitability standards for advice on personal pensions. In this CP they discussed the removal of the rule. After careful consideration of all the relevant information and further intensive discussion with interested parties, the FSA have decided to retain the rule in their Handbook. They do not believe that a strong enough case has been made to enable them to remove the RU64 rule.
Bizarrely, after trying to get rid of it, the FSA now consider that RU64 is an example of a situation in which it is appropriate to retain a detailed, prescriptive rule rather than one of those long pieces of rope (aka Principles).
| Ateb view: |
Mixed views, because many personal pensions actually have lower charges than stakeholders.
It’s still an area that can be overlooked and with the FSA looking into SIPPs and their use we suggest that firms take care that they continue to give good reasons for promotion of non-stakeholder products. |
| Action required by you: |
Further information can be found at:
http://www.fsa.gov.uk/pages/Library/Communication/Statements/2007/ru64.shtml |
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17.
Client Satisfaction Surveys
As you are already aware, the FSA are expecting firms to measure their success at treating customers fairly. This is always going to be a difficult concept. It is clear that although file checks and complaints can be used to measure TCF they are also looking for more specific statistical information. These can include the conventional KPI measures with which we are familiar (the ATEB website KPI monitoring forms has more information). Our experience of FSA visits is that they are always keen to look at how these are obtained and used.
One statistic which the FSA seem to positively encourage is client satisfaction survey results as a TCF measure although its one which most firms do not currently use. We do, however, have several clients who have used them for a while and their reaction is very positive towards them.
4 key tips to client surveys
- Any survey must be short and simple to complete. Anything complicated or requiring a lot of writing will probably reduce the return rate.
- It is probably best to send out on completion of a sale (so the clients can remember the process they have just gone through) rather than to clients who were advised in the past.
- Make it easy for the client to complete and return. One firm has had the survey printed on a pre-addressed postcard!
- Records of how many sent and returned should be kept. Also, statistics of results should be maintained. Discussion of results should be recorded in the minutes of management meetings or compliance officer’s report and, even more importantly in these minutes, a record of actions taken to correct or improve the advice and service processess.
ATEB has designed a suggested survey which we think will be easy to complete for the client and easy for the firm to analyse. The questions have been designed to link in with the six outcomes by which the FSA will measure your firm.
| Ateb view: |
Our strong recommendation as a compliance consultancy is that firms should have a system of gauging client’s opinions. The FSA know that lack of complaints alone is a poor indication of general client satisfaction. The FSA are obviously very keen on you establishing TCF as part of your company culture. The use of surveys is a good indicator of that. |
| Action required by you: |
Contact us by email for a copy of the questionnaire. |
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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
