Investment Firms / Mortgage Brokers
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1. Change of Control – Firm Fined for not Waiting for Approval
2. Changes to Close Links Reporting
3. Feedback from TCF Follow up Verification Visits
4. RDR Update
5. Exams – CII or IFS which is your preference?
6. Anti-Money Laundering ID Verification
7. Plain English Guide to Data Protection
8. Structured Products Review Template
9. FSA Register – Change Required to Key Facts Documents
10. Section J of the RMAR - FSCS Tariff
11. Final Reminder - Changes to the Financial Services Compensation Scheme
12. Reminder - Complaints and Compensation arrangements for smaller firms
13. ATEB Supervisor Workshop
14. FSA Investigations - Legal Costs Insurance
15. Intensive Supervision
16. FSA Fines
17. Assessing Customer's Knowledge and Experience
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. Change of Control – Firm Fined for not Waiting for Approval
We have mentioned this so many times in the past, but PLEASE, PLEASE remember that you must tell the FSA and seek prior approval for changes in control in your firm.
In the past, firms have got away with some wrist slapping but no fines, but the law changed in March 2009 so that the courts now have the power to impose an unlimited fine for change in control offences committed after this date.
Please note that this requirement extends to business acquisitions e.g. one firm taking over another.
A firm recently received a £1,000 fine for failing to wait for FSA approval.
| ATEB view: |
| You have been warned |
| Action required by you: |
| Information only |
Return to Features List or
Contact Us
2. Changes to Close Links Reporting
Do you know what a Close Link is? Do you know that you have to report any changes to close links that you may have? Do you know that the reporting rules are changing?
A close link is defined as:
- participation, meaning ownership, direct or by way of control, of 20% or more of the voting rights or capital of an undertaking; or
- control, meaning the relationship between a parent undertaking and a subsidiary.
You must notify the FSA if you have become or ceased to become closely linked with any person (see SUP 11.9.1R). The notification must be made by completing the Close Links Notification Form (see SUP 11.9.3A G) and must include the information set out in SUP 16.5.4R (4). You must do this no later than one month after you become aware that you have become, or ceased to be, closely linked. By arrangement, some firms report such information monthly, but these will be few and far between.
| ATEB view: |
| Information only |
| Action required by you: |
| If you have any concerns or suspect that you may have close links that have not been notified to the FSA, you should take action immediately. |
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3. Feedback from TCF Follow up Verification Visits
Here are some of the key issues raised by the FSA:
Early Vesting of Pensions
There is an obvious concern about customers vesting early and consequently, the FSA’s view is that this should not be encouraged. If it is to take place, full rationale, implications and risks must be made clear. IFAs must fully establish (fact find) the need and reasons for early vesting. What is the pension commencement lump sum (tax free cash) specifically to be used for (something like ‘to be used in the business’ or ‘for personal use’ is not deemed sufficient). Similarly, if income is taken, what is its purpose? The implications on retirement must be spelled out and all risks must be clearly highlighted. The suitability letter must cover all these points. If you feel that the transaction is not in the client’s best interest, then you must consider not transacting. Insistent customer or execution only could also be considered, but should be the exception.
Use of Management Information
MI should be used to assist in the identification of any potential issues or trends that might impact on the fair treatment of customers. MI should be reviewed periodically (how often will depend on the size and complexity of your firm) and formally document this process (to include an explanation of what the MI is telling you, any issues or trends and further investigations needed, any remedial action taken and the effectiveness of that action). The FSA believe that using MI in this manner will help demonstrate how you manage risk to improve your business and overall outcomes for consumers. We recommend that a formal sign-off is used when reviewing MI (refer to your ATEB Consultant).
Principal’s Involvement in Systems & Controls
Business principals must engage fully with the systems and controls in place and be actively involved in monitoring. Full abdication to managers or compliance consultants is unacceptable. Principals must be actively involved in the process.
Principal’s T&C and Competence
Following on from this, business principals must be able to demonstrate competence, through active CPD and competence testing. Principals should maintain T&C records in the same way and to the same standards as advisers. You may be interested to know that a partner in a firm has recently been banned and could have received a £10,000 fine. The person was registered as a controlled function CF 4 (partner) but took very little active part in the firm. The FSA said: "……. was incompetent and acted as an ‘absentee partner’ putting both ABC Ltd and its customers at risk. Engaging with the day to day running of the firm and how your customers are treated are important aspects of being an approved partner of a regulated business. Partners are responsible for making sure that their businesses are properly managed and must inform the FSA if they can no longer meet their responsibilities. Our action shows how seriously we expect senior management to take their roles. We will not hesitate to take action against anyone who fails to carry out their regulatory roles as required."
Non-Advised, Execution Only and Insistent Customers Business
Be absolutely clear what constitutes this type of business and have procedures and declarations in place to cater for them.
In-House File Checks
Make sure these are selected on the basis of risk and that volumes are commensurate with adviser’s competence, business volumes and business types. The checks need to be thorough and fully followed through. In one instance, the FSA picked up issues with a file that had not been actioned following an in-house check.
| ATEB view: |
| These are all very important points. |
| Action required by you: |
| Measure yourself against these standards. Discuss with your ATEB consultant. |
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4. RDR Update
Here are some bullet points covering some of the key issues.
FSA Papers
The latest batch of papers has been produced, namely:
Strategy
- Do you have a defined strategy to meet the RDR requirements?
- Is this documented in a business plan?
Note: ATEB offers an RDR business planning service which can be tailored to your requirements, from provision of RDR business plan pro-forma to hands-on strategic planning and implementation.
Qualifications
- Existing investment advisers must be qualified by the end of 2012, to QCF Level 4
- There will be a new qualification structure to be approved June 2010, study material likely to be available by end of 2010
- There is a ‘no regrets’ policy however, whereby examinations passed prior to the new regime, will remain valid, but ‘top-up’ structured CPD will be required to make up any differences in syllabus
- Alternative Assessments. We know of one adviser who has passed the IFS Diploma, which provides an alternative approach to the CII ‘JO’ and ‘AF’ exam route. It requires far more case study analysis, but still entails some examination work. Feedback from the adviser was very positive however (see article that follows)
Overseeing Professional Standards
- Greater requirement on firms to demonstrate initial and ongoing competence, as well as ethical behaviours
- More intensive approach to supervision by regulators (see separate article)
- Focus on key individuals in firms
- Greater emphasis on the benefits of professional body membership
- Greater role for professional bodies to set business and ethical standards and to monitor members
Prudential Standards (Capital Adequacy)
- Firms will have to hold capital worth a month of their annual expenditure by 31st December 2011
- Increasing to two months in 2012; and
- Three months by 31 December 2013.
| ATEB view: |
| RDR gathers pace and is fast approaching. Please do not bury your heads in the sand. It will not go away! |
| Action required by you: |
| A STRATEGIC PLAN IS A MUST! |
Return to Features List or Contact Us
5. Exams – CII or IFS which is your preference?
With RDR exam deadlines looming closer, we’ve put together a quick comparison of the CII and IFS (see below) and you will see both approaches are quite different! Both exams appear on the FSA's list of transitional qualifications under its 'no regrets' policy, meaning that holders will only need to complete top up CPD by the end of 2012 to remain qualified.
| CII - Diploma in Financial Planning |
IFS - Diploma for Financial Advisers |
| National Qualifications Framework - Level 4 |
National Qualifications Framework - Level 4 |
| *80 Credits (20 credits per ‘J0 subject’) |
2 Core Units (See below) |
| Estimated 400 learning hours |
Estimated 310 guided learning hours |
| Sittings in April/July/October |
Registrations commence 4 times a year |
*J01 to J07 - 15 compulsory written short answer questions in 2 hours and a pass mark of 55%
J08 - 2 written case studies in 3 hours and a pass mark of 55%
IFS Assessment
Financial Planning Principles (FPP) - (Unit 1)
Assessed by a 2-hour multiple-choice examination. You must achieve a minimum of 70% to pass the unit. This examination is delivered electronically with results given immediately. You can take this on a Saturday if you want!
Advanced Financial Advice (AFA) - Unit 2
The second assessment will represent 30% of the overall unit weighting and will take the form of a written coursework assignment which should be submitted after approximately 16 weeks of study. The coursework will comprise a written piece of work with a word count of approximately 2,500 words, and a case study element. The pass mark for this assessment is 50%.
The third assessment will represent 70% of the overall unit mark weighting and will take the form of a written examination combining knowledge, understanding and application of AFA. This assessment will be taken at an examination centre at the end of the period of study, intended to be within a period of 36 weeks, and will involve the production of a Factfind. You will receive the Factfind 2 weeks prior to the examination date. The pass mark for this assessment is 50%. You are required to pass all 3 assessment elements
| ATEB view: |
| If you prefer the case study /assignment approach with some multiple choice and a tutor thrown in then it’s the IFS route whereas if you prefer written questions exam style then it’s the CII. |
| Action required by you: |
| Hope this gives you a flavour, we suggest you will need to call them (numbers below) to discuss
CII - Telephone: 020 8989 8464
Website
IFS - Telephone: 01227 818609
Website
|
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6. Anti-Money Laundering ID Verification
ID cannot be obtained after the event. The JMLSG Guidance part 2 paragraph 6.11 clearly states:
“A firm must not enter into a business relationship until the identity of all the relevant parties to the relationship has been verified in accordance with the guidance in Part I, Chapter 5.”
JMLSG Guidance part 1, 5.2.6 goes on to state that:
“Where a firm is unable to apply Customer Due Diligence (CDD) measures in relation to a customer, the firm:
(b) must not establish a business relationship or carry out an occasional
transaction with the customer;
(c) must terminate any existing business relationship with the customer;
| ATEB view: |
| Reminders can be good, and this is a good reminder |
| Action required by you: |
| Remind your staff about this reminder |
Return to Features List or
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7. Plain English Guide to Data Protection
The Information Commissioner’s Office (ICO) has issued a new booklet which aims to provide businesses with practical advice about the Data Protection Act.
It can be found here.
| ATEB view: |
| Useful information |
| Action required by you: |
| Issue as CPD material |
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8. Structured Products Review Template
Following the FSA’s Pension Switching review, a similar review of structured products has been undertaken – see ATEB Newsletter October 2009.
Many of you have now adopted the FSA’s pension switching template as part of your procedures for writing and checking such business – this is good practice.
You may know that a similar template is available for checking structured products – available at
http://www.fsa.gov.uk/pubs/other/sip_template.pdf
| ATEB view: |
| In truth, this is a long winded affair, but is nevertheless a very useful tool to use as it reminds you of the standards expected for all high risk business. |
| Action required by you: |
| You should include as part of you high risk business procedures. We also suggest that you read the FSA document quality of advice review on structured products available from http://www.fsa.gov.uk/Pages/Library/Other_publications/structured/index.shtml |
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9. FSA Register – Change Required to Key Facts Documents
On your Key Facts documents, section 5 includes the following text:
“You can check this on the FSA’s Register by visiting the FSA’s website www.fsa.gov.uk/register or by contacting the FSA on 0845 606 1234.”
Unfortunately, even though the FSA’s own templates (generated from their website) include this text, the web address www.fsa.gov.uk/register is no longer correct.
To access the FSA Register nowadays, you need to go to http://www.fsa.gov.uk/Pages/register/
| ATEB view: |
| Long live the FSA! |
| Action required by you: |
| Better change your documents (again!!) |
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10. Section J of the RMAR – FSCS Tariff
We have had numerous calls about how to complete section J and the FSCS tariff part. Here is our interpretation of how it should be completed.
What you need to do is look at your last (full) year end return for RMAR.
On the P&L section B, your income will be split between
A = Mortgage income
B = Insurance income
C = Investment Income
What you now need to do is further sub-divide C above into:
D = Pure investment income (e.g. OEICs, ISA, Unit Trust)
E = Non-Pure investment income (e.g. Bonds)
F = Pension income (F)
And split B into:
G = Pure protection income (Life Insurance, Critical Illness, PHI, etc)
H = General insurance (If any – Buildings, Contents, ASU, etc)
What you need to tell the FSA in Section J is:
Life and Pensions income which is = E + F + G
Investment income which is = D
| ATEB view: |
| More complication without any real need |
| Action required by you: |
| This is our interpretation, so read the above in conjunction with pages 47 and 48 of CP08/8 at http://www.fsa.gov.uk/pubs/cp/cp08_08.pdf |
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11. Final Reminder - Changes to the Financial Services Compensation Scheme
If you have not already done so, you need to change your Key Facts Documents and / or your Terms of Business to reflect changes in the FSCS compensation levels.
For those using Key Facts Documents, we suggest the following wording:
If this information is also contained in your TOBAs, then they too should be amended accordingly.
Please note that there is no change to compulsory insurance, such as motor third party and employers' liability insurance. This will remain at 100% protection with no upper limit.
| ATEB view: |
| Information only |
| Action required by you: |
| Make changes if not already done so |
Return to Features List or
Contact Us
12. Reminder - Complaints and Compensation arrangements for smaller firms
This one has caused some confusion! So, in an attempt to clarify matters .....
The access rights of small businesses to the Financial Ombudsman Scheme (FOS) have changed from 1st November 2009. From that date, to have rights of referral to FOS, small businesses must employ fewer than ten persons and have an annual turnover and/or annual balance sheet total that does not exceed €2 million (this is the European Commission’s definition of a micro-enterprise).
Please note the use of the word “and” i.e.
“Fewer than ten persons AND have an annual turnover and/or annual balance sheet total that does not exceed €2 million”.
Both conditions must apply and we have confirmed this with the FOS technical helpline.
So by way of example:
- Firm has 12 employees and a turnover of €1 million - firm is not eligible.
- Firm has 8 employees and a turnover of €2.5 million - firm is not eligible.
- Firm has less 8 employees and a turnover of €1.5 million - firm is eligible.
Note that access rights of individuals to FOS are unchanged and the access rights of both individuals and small business to the Financial Services Compensation Scheme (FSCS) also remain unchanged.
| ATEB view: |
| Information only |
| Action required by you: |
| Information only |
Return to Features List or
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13. ATEB Supervisor Workshop
Date
Thursday 22nd April 2010
Content
- Overview of general T&C requirements on regulated firms
- Setting customer facing sales process standards
- Consistent and accurate assessment skills
- Theory of coaching and training
- Training Needs Analysis completion
- Constructing SMARTA development plans
- Structuring one to ones
- Monitoring performance
Timings
10.00am until 4.00 pm
Location
Horton Grange Country House Hotel
Berwick Hill
Seaton Burn
Newcastle Upon Tyne
NE13 6BU
Cost
£175 plus VAT per person
Joining Instructions
These will be issued 7-10 days prior to the workshop
| ATEB view: |
| Information only |
| Action required by you: |
| We still have a couple of spaces available – if you would like a place please let us know as soon as possible |
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14. FSA Investigations – Legal Costs Insurance
Did you know that you can insure against the legal costs incurred for defending FSA investigations?
It is designed to assist FSA Approved Persons by funding the legal advice and action required when investigated by the FSA. Please note that such insurance is not designed to insure against fines and/or penalties.
If considering purchase of such insurance, please check your PI and Directors/ Officers policies to avoid any duplication of cover.
Although we would be happy to introduce you to an experienced broker, PLEASE NOTE THAT ATEB IS NOT PROMOTING OR ADVOCATING ANY PARTICULAR INSURER OF PRODUCT – THIS IS FOR INFORMATION ONLY.
| ATEB view: |
| You should review your insurance requirements regularly with an experienced broker as part of your risk management strategies. |
| Action required by you: |
| Information only |
Return to Features List or
Contact Us
15. Intensive Supervision
You may have heard or read about the FSA’s move to more ‘intensive supervision’. After a number of fallow years when we heard very little from the FSA, more recently there has been, and will continue to be, more monitoring in the form of themed reviews which often necessitate the need for internal and/or external reviews (e.g. pension switching), desk based monitoring (e.g. questionnaires and telephone interviews), roadshows (e.g. TCF), mass assessments (e.g. TCF) and supervision visits.
This more intensive approach to supervision has already resulted in numerous fines this year, totalling £2,644,000 to date. A list of these fines and the reasons behind them can be found in the Fines Table on the FSA website at
http://www.fsa.gov.uk/Pages/About/Media/Facts/fines/index.shtml
The fines imposed on firms and/or individuals contribute to the FSA’s annual funding requirement and means that the amount of fees levied on firms is reduced for the next fee paying year.
| ATEB view: |
| We do not see the intensity of supervision decreasing, certainly in the short term, and believe that it is right and proper that serious offences should be adequately punished. |
| Action required by you: |
Information only
|
Return to Features List or
Contact Us
16. FSA Fines
We don’t like to scaremonger, but we would not be doing our job if we failed to fully explain the consequences of non-compliance.
By way of illustration therefore, please see below. Note that individuals, as well as directors, have been fined.
Financial Ltd
Charles Palmer, director of Gloucestershire based IFA network, Financial Ltd, has been fined £49,000 for management failings which resulted in poor compliance monitoring on pension switching advice during a period of rapid expansion. Financial Ltd has also agreed to carry out a past business review, which may lead to customer redress if it is found that unsuitable advice was given.
During its investigation, the FSA found shortcomings in the way the firm organised its business and how responsibility for monitoring advisers was allocated to senior management. In turn, this led to concerns about the monitoring of the quality of pension switching advice given by advisers between April 2006 and August 2008.
Note that the FSA state that "As the director of the firm, Palmer was personally accountable for failing to take the steps needed to manage the risk of advisers giving potentially unsuitable advice .....”
Park Row
Another IFA firm, Park Row based in Leeds, has been told to repay up to an estimated £7.8m in redress to customers, quite possibly the highest redress figure for any firm to date (the lender GMAC had to repay £7.7M plus interest in 2009).
The FSA found that the firm recklessly failed to ensure proper advice was given on pensions, mortgages and investments.
The FSA said that the firm would have been fined £2.4m but it would have been unable to pay it.
Interestingly enough, the net commissions and fees generated by Park Row during the two-year period when the mis-selling took place, reached approximately £10.3m – still seems to be a profit in there somewhere!
The FSA has also handed down a fine of £49,000 to Peter Sprung, the firm's former chief executive (past president of the LIA before it merged with SOFA to create the Personal Finance). He has also agreed not to perform a significant function at any firm for five years.
Sett Valley Insurance Services
This is small firm, not untypical of those reading this newsletter. The FSA’s Final Notice letter is a MUST READ – it can be found at http://www.fsa.gov.uk/pubs/final/sett_valley.pdf
None of the issues highlighted are particularly complex – this is not a pensions switch or SCARP scenario – but simply a failure of core compliance requirements – systems and controls, T&C, fact finding, etc. As you read it, ask yourselves (objectively) whether or not some of the issues highlighted are adequately addressed in your firm.
Total fine = £49,000.
| ATEB view: |
| Interesting Footnote: Financial Ltd also offers compliance consultancy services, providing support to numerous firms - be careful who you get advice from! |
| Action required by you: |
Read the Sett Valley Insurance Services Final Notice letter
Ask yourselves if you have adequate monitoring facilities – how often are files checked, how often is CDP checked, do you (or external consultants) undertake an annual audit, how often do you see your compliance consultant, do you listen to what they say?
|
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17. Assessing Customer’s Knowledge and Experience
The FSA has stipulated that you are required to assess and record your client's knowledge and experience when gathering customer (fact finding) information.
For more information on the type evidence we expect you to get please read our factsheet.
Fact sheet available at
http://www.fsa.gov.uk/smallfirms/resources/factsheets/pdfs/QAcustomer_needs.pdf
Here is an extract from the fact sheet:
“Knowledge and experience – do you gather information on the types and frequency of any previous transactions they have carried out and assess whether the customer understands the complexity and risks of the intended recommendation?”
| ATEB view: |
| What the FSA wants, the FSA should get – be warned! |
| Action required by you: |
| Amend fact finds to ensure this information is gathered |
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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 Huw Reynolds email info@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:
E: info@atebconsulting.co.uk
W: www.atebconsulting.co.uk
ATEB consulting is a trading name for ATEB Business Solutions Limited
Registered in England & Wales Reg. No: 5075208
2 Stoneyhurst Road West, Gosforth, Newcastle upon Tyne, NE3 1PG
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