Compliance News - 16 December 2011
INDUSTRY NEWS FLASH WEEK ENDED 16 DECEMBER 2011
The Financial Services Authority (FSA) has banned and fined a former client adviser at UBS AG (UBS), £150,000 for failing to act with integrity, in breach of Principle 1 of its Statements of Principles and Code of Conduct for Approved Persons (“APER”) and for not being a fit and proper person. He is prohibited from performing any function in relation to any regulated activity in the financial services industry.
He was a client adviser within UBS’s international wealth management business in London. Between 1 January 2006 and 30 January 2008 he used a pre-existing investment structure to enable an Indian resident customer (via an investment fund incorporated in Mauritius) to breach Indian law in clear contravention of UBS guidelines. Ultimately, the customer invested over US$250 million in the Fund.
Under Indian law, an Indian investor (whether resident or non-resident in India) is not permitted to invest in Indian securities through a vehicle known as a “Foreign Institutional Investor” (FII) except in particular circumstances (which are not relevant here). Such vehicles are designed so that non-Indian investors may make investments in Indian securities.
The former client adviser then wrongfully took steps to conceal the true nature of the customer’s investment, mainly by the deliberate and repeated provision of false and/or misleading information to the UBS Legal and Compliance department and other parts of UBS. He also assisted in making unauthorised redemption payments out of the Fund knowing, among other things, that the redemptions were not properly authorised by the customer and breached UBS internal compliance rules.
Tracey McDermott, acting director of enforcement and financial crime, said:
''Ahuja’s failings were significant. He exploited his position of trust and repeatedly lied to his compliance department while helping a customer circumvent Indian law. This sort of behaviour has no place in the financial services industry. This substantial fine and the ban from working in the financial services industry are significant penalties and should serve as a reminder that such behaviour is woefully short of that expected of approved persons and will not be tolerated.''
In November 2009 the FSA fined UBS £8million for systems and controls failures in relation to this case. UBS has since repaid the affected customers in excess of US$42 million by way of redress.
Source: Financial Services Authority
The Markets Division of the FSA is the specialist supervisor with regard to the UK regulated covered bond regime. As part of their supervisory function, they are committed to promoting transparency and investor understanding of the UK’s regulated covered bond regime.
FSA is aiming to issue guidance on certain areas of the Regulated Covered Bond regime to set out minimum expectations and highlight current good market practice. This constitutes guidance according to Regulation 42 of the RCB legislation and therefore requires consultation.
The key areas the guidance will cover are the scope and depth of engagement that the signatory of the annual confirmation of compliance (RCB 3 Annex 1D) has with the programme, the content of Management Information and the appropriateness of systems and controls. Consultation closes on 27 January 2012.
Source: Financial Services Authority
In a case brought by the Financial Services Authority, a management consultant was found guilty of 22 counts of insider dealing at Southwark Crown Court and sentenced to two years imprisonment. He was found not guilty on one other count of insider dealing.
Between 15 May 2009 and 22 August 2009, the management consultant was jointly involved with an ex-hedge fund trader and risk manager with AKO Capital LLP (AKO), in insider dealing in 18 different UK and European listed shares, based on inside information obtained by the ex-hedge fund trader in his role as a trader at AKO about forthcoming transactions by AKO in those securities. The management consultant placed spread bets in relation to those securities and made approximately £ 524,000 profit.
In passing sentence His Honour, Judge Gledhill QC, commented:
“You are greedy. Sheer greed is behind all these offences.”
The case is the sixth successful prosecution for insider dealing bought by the FSA and is part of its ongoing drive to tackle market abuse and promote efficient, orderly and fair markets.
Source: Financial Services Authority
On Friday, 9 December 2011, the Financial Services Authority (FSA) secured a summary judgment* in the High Court against Cityshore Commodities Limited (Cityshore) and its director Aaron Walker. The judgment confirmed that Cityshore sold land illegally to UK consumers. Mr Justice Peter Smith ordered Cityshore and Walker to make an interim repayment of £200,000 through the FSA, to their victims. They have also been banned for life from selling land by way of business in the UK.
Earlier this year, as part of the same case, a manager of Cityshore, Ashley Cunningham consented to a similar ban and an order requiring her to pay to the FSA sums received by her for her participation in the business. Cityshore sold plots of land in Grantham, Lincolnshire, to investors on the promise they would make a significant profit when the land ultimately obtained planning permission and was sold on. In fact, the land was in an area which meant it was unlikely to gain planning permission.
Cityshore’s customers were told by the company’s sales staff that they had already applied for planning permission for the land or that they had well-known house-builders lined up to purchase the plots. In reality, Cityshore had no intention of seeking planning permission or helping purchasers sell their land. Cityshore was stopped by an initial injunction obtained by the FSA in January 2011 after the firm had made sales of land totaling over £400,000 at a significant profit.
The FSA does not regulate the sale of land but land banking amounts to collective investment, something that requires FSA authorisation. Cityshore was never authorised by the FSA so its land sales were illegal.
The FSA first took High Court action against a land banking firm – UK Land Investments Limited – in 2008. Since then the FSA has obtained injunctions against eight firms involved in land banking. Most recently, in November this year, in a separate case the FSA executed search warrants on nine premises in Kent and Greater London and five individuals were arrested.
Source: Financial Services Authority
The Financial Services Authority (FSA) is planning to make it obligatory for all banks, building societies and credit unions in the UK to prominently display how much compensation savers could claim in the event of an institution failing and where from. This information would be shown in every branch and all websites.
These proposals are part of a continuing effort by the FSA and the Financial Services Compensation Scheme (FSCS) to improve confidence around compensation by increasing awareness of deposit protection.
The proposals will require each FSA-authorised bank or building society based in the UK to state that: ‘Your deposits are protected up to £85,000 by the Financial Services Compensation Scheme, the UK deposit protection scheme. Any deposits you hold above this amount are not covered.’
Banks with branches in the UK, but headquartered and authorised in the European Economic Area (EEA), will have to state that deposits held with them ‘are not protected by the UK Financial Services Compensation Scheme.’ They will also have to state which other national scheme is providing the protection.
The proposed changes are designed significantly to reinforce existing deposit protection measures and will ensure that every customer can clearly see how much of their money is protected, how much is not and whether they are covered by the UK compensation scheme.
Recent research conducted by the FSCS to measure consumer awareness of the scheme, found customer knowledge continues to be extremely poor, and has in fact dipped since the crisis.
These proposals are the latest step in improving the deposit protection arrangements for consumers. A year ago all national compensation schemes across the entire European Economic Area were harmonised to offer cover at €100,000 or the local currency equivalent and ensure eligible consumers are paid within 20 working days.
In addition, at the start of this year the UK introduced faster payout rules, with a target of a seven day payout for the majority of claimants and the remainder within 20 working days; and gross payout, which protects customers by ring fencing their deposits if they have savings and loans with the same firm.
Source: Financial Services Authority
The Financial Services Authority (FSA) has appointed John Spence as a non-executive director to Board of the Money Advice Service with effect from 2 January 2012.
John brings significant experience from the banking sector. He is currently Finance Chair for Business in the Community and holds current non-executive directorships at Capital for Enterprise, as Chair of the Audit Committee, HM Revenue & Customs, Chair of Harlow Renaissance Limited and Spicer Haart Limited. Previously John was the Chair for the British Bankers Association Retail Banking Committee, and has held a variety of executive positions at Lloyds TSB.
Lord Turner, the FSA’s chairman, said:
“We are pleased that John has been appointed to the Money Advice Service Board as non-executive director. He brings with him extensive experience from the banking sector which will greatly benefit the Service.”
Gerard Lemos, chairman of the Money Advice Service said:
“I am delighted to welcome John Spence to the Money Advice Service board. John brings an invaluable blend of senior banking experience, together with finance and audit knowledge, which will be instrumental for our development of the Service and engagement with our stakeholders. I very much look forward to working with John in the busy year ahead, and beyond.”
Source: Financial Services Authority
This consultation will be of direct interest to issuers and their professional advisers and to investors. Consumers may be interested in this as investors – directly, or indirectly through institutions – because the Prospectus Directive raises issues around protecting investors.
On 31 December 2010, the Amending Directive 2010/73/EU came into force amending the Prospectus Directive (2003/71/EC) and Transparency Directive (2004/109/EC). Member States have until 1 July 2012 to implement the directive in national legislation.
The European Commission was required to undertake a review of the effectiveness of the Prospectus Directive five years after its entry into force. The Commission’s assessment, following a review in 2009, found that the prospectus regime was broadly operating well and that the quality and appropriateness of information given to investors had improved. However, the review identified a need to increase legal clarity and the overall efficiency of the prospectus framework, as well as an opportunity to simplify the regime for the benefit of issuers, without compromising investor protection.
An issue of duplication was also examined. The Amending Directive made changes to both the Prospectus and Transparency Directives to ensure that issuers were not required to duplicate their disclosures under the two regimes and to ensure the two regimes are aligned.
Feedback is due by 13 March 2012.
Source: Financial Services Authority
The ABI welcomes the Government’s announcement on the direction it intends to take on the Controlled Foreign Companies (CFC) reforms following the consultation over the summer. This shows that the Government remains committed to making the UK tax system the most competitive in the G20, which will be a key driver for growth.
The ABI was pleased that the Government has listened to the concerns of the insurance industry over the complexity of the proposals published this summer. The simpler approach adopted should make the reformed regime less burdensome to comply with and more certain in its application. The regime should be flexible enough to accommodate the specific features of insurance businesses.
The ABI was pleased that the Government has listened to the concerns of the insurance industry over the complexity of the proposals published this summer. The simpler approach adopted should make the reformed regime less burdensome to comply with and more certain in its application. The regime should be flexible enough to accommodate the specific features of insurance businesses.
There is still much to work to do on the detail to ensure that the reforms are a success, not just for the insurance industry but for the competitiveness of the UK tax system as a whole, and the ABI state that they will work with the Government to ensure this happens.
The insurance industry contributes over £10bn a year in taxes to the UK Exchequer despite competition from many locations around the world for insurance business. In the face of that competition, more insurers than companies from any other sector have had to redomicile from the UK to remain internationally competitive.
The insurance industry contributes over £10bn a year in taxes to the UK Exchequer despite competition from many locations around the world for insurance business. In the face of that competition, more insurers than companies from any other sector have had to redomicile from the UK to remain internationally competitive.
The CFC regime is one of the main areas where the UK tax system still falls short, so its successful reform is a vital part of stopping and reversing that trend. Making the UK more competitive will encourage the growth of UK based insurers and, in turn, the contribution they make to the Exchequer.
Source: Association of British Insurers
The Association of British Insurers strongly supports the Government’s efforts to simplify the tax system but believes they have got it wrong on Life Assurance Premium tax relief. Mark Edwards, Head of Taxation at the ABI said:
“Whilst we strongly support the Government’s efforts to simplify the tax system, we are disappointed that they have chosen to end life assurance premium tax relief. The relief is not obsolete. It still benefits hundreds of thousands of people, many of whom are retired and on low incomes. This move will lead to confusion not simplification. People with affected policies will now have to get to grips with what this change means for them and get financial advice to understand the impact it could have on their policies and benefits.”
Life Assurance Premium tax relief was introduced to incentivise long term regular savings and to encourage people to provide financial protection for their families. People paying into qualifying life insurance policies taken out before 1984 currently get 12.5% tax relief on their income tax.
Life Assurance Premium tax relief was introduced to incentivise long term regular savings and to encourage people to provide financial protection for their families. People paying into qualifying life insurance policies taken out before 1984 currently get 12.5% tax relief on their income tax.
In 1984 this was abolished for new customers, but the decision was taken to keep it for current customers as it would naturally end on the death of individual policyholders. It is estimated that there are still approximately 1.5 million policies in existence, all of which will be affected by the Government’s decision to end the tax relief.
Source: Association of British Insurers
The ABI has called on the Government and Financial Ombudsman Service to adopt a focused approach to publishing ombudsman decisions. Whilst the ABI supports greater transparency, it questions whether the publication of all ombudsman decisions is the best approach for providing useful insight, in its response to the Financial Ombudsman Service’s consultation on the issue.
Whilst a small number of consumer complaints can raise broader industry-wide issues, the very individual and unique nature of the vast majority of Financial Ombudsmen cases makes reading lessons into thousands of decisions impractical and potentially misleading.
The ABI would like to see the Government adopt a more balanced approach in its legislation, giving the Financial Ombudsman Service the right to publish only those decisions that may serve a useful purpose for consumers and firms.
Maggie Craig, Director of Financial Conduct Regulation at the Association of British Insurers, commented:
Whilst a small number of consumer complaints can raise broader industry-wide issues, the very individual and unique nature of the vast majority of Financial Ombudsmen cases makes reading lessons into thousands of decisions impractical and potentially misleading.
The ABI would like to see the Government adopt a more balanced approach in its legislation, giving the Financial Ombudsman Service the right to publish only those decisions that may serve a useful purpose for consumers and firms.
Maggie Craig, Director of Financial Conduct Regulation at the Association of British Insurers, commented:
"Whilst the ABI supports transparency, it should be a means to an end, not an end in itself. Government legislation should encourage the Financial Ombudsman Service to work closely with consumer groups and the industry to select the most appropriate ombudsman cases for publication.”
Source: Association of British Insurers
Gross mortgage lending in November totalled an estimated £13.0 billion, with the monthly figure showing its fourth consecutive year-on-year rise, according to the Council of Mortgage Lenders. This is 5% higher than in October, and 13% higher than in November 2010.
Publishing its housing and mortgage market forecast update, the CML confirmed that it now expects gross lending in 2011 to total £138 billion, with net lending of £9 billion. For 2012, the CML's new central forecast is for £133 billion of gross lending and £5 billion of net lending, representing the weaker economic backdrop that now seems likely. However, with so much economic uncertainty at present, this is subject to considerable variation in either direction.
The CML continues to expect the bulk of the negative effects in the housing market of wider economic uncertainty to manifest through a continuing low level of housing transactions. While an estimated 852,000 transactions are likely to have taken place in 2011, the CML anticipates fewer transactions next year with a central forecast of 825,000.
In terms of mortgage repayment difficulties, the CML expects the increasing pressures on the household sector to unwind some of the improvements in mortgage arrears and repossessions experienced over the past two years. The central forecast is for 45,000 repossessions next year, up from an estimated 37,000 this year but still fewer than the 2009 figure, and far lower than in the downturn of the 1990s.
Source: Council of Mortgage Lenders
