Compliance News - 18 November 2011
CC:ME WEEK ENDED 18 NOVEMBER 2011
At the prestigiousCompliance Register Platinum Awards held last Thursday night, The Consulting Consortium added to our trophy cabinet winning
- Best Compliance Consultancy Services (Retail Markets)
- Best Chief Executive/Managing Director – went to Joanne Smith.
Well done to all our team and Joanne – and many thanks to all of you who nominated us and supported our nomination for both awards.
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The Bribery Act 2010 has started to bite – an official at Redbridge Magistrates Court, has been sentenced to 6 years in jail for accepting bribes to omit putting details of speeding offences on a Court database. The sting operation set up by a UK newspaper clearly showed that there had been suspicions about the individual for some time, and it has been alleged that in excess of £20,000 had been paid to the official by motorists.
This raises the interesting question of how far the prosecuting authorities will go in investigating the employer – the Court system itself. Did they have “adequate procedures” in place? Or was this a rogue employee who simply flouted the established, timely and re-enforced rules, procedures and training put in place by the employer?
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During November 2011, Transparency International, the anti-corruption non-governmental organisation, launched its fifth Bribe Payers Index which ranks 28 of the world’s largest economies according to the expected likelihood of their companies to bribe when doing business abroad. To compile the Index, TI surveyed more than 3,000 executives of companies working across all world regions, involved in business which makes up approximately 80% of global goods and services exports and investments.
The Index builds on previous versions and for the first time considers private-to-private sector bribery, as well as analysing the likelihood of low level and high level public sector corruption in given countries and business sectors. It will form a useful tool for corporates seeking to perform anti-corruption risk assessments as part of developing “adequate procedures” in the context of the UK Bribery Act 2010.
The Index reveals that:
The Index builds on previous versions and for the first time considers private-to-private sector bribery, as well as analysing the likelihood of low level and high level public sector corruption in given countries and business sectors. It will form a useful tool for corporates seeking to perform anti-corruption risk assessments as part of developing “adequate procedures” in the context of the UK Bribery Act 2010.
The Index reveals that:
- There is clear evidence of bribery taking place between private companies;
- The likelihood of companies from a given country to bribe abroad is closely linked to the perception of business integrity and public sector corruption “at home”;
- Chinese and Russian companies were viewed as the most likely to pay bribes; and
- Across the business sectors, the Construction industry performed weakest.
Source: Bribe Payers Index
Last Monday heralded further strife, confusion and IT let-downs for bankers, traders and hedge fund managers as the new FSA rules on phone recording came into effect. One firm realised on the day itself that their ability to record calls was non-functioning, so had to resort to switching mobiles off until the problem was resolved.
Although the FSA gave financial institutions a year to put the new policies into effect, some players left it until the last minute to implement and do not appear to have tried pre-implementation testing – a basic gaffe.
We can help you meet these challenges – you only have to ask.
The Financial Services Authority has fined a discretionary investment management firm based in East Lothian, £15,050 for breaching the FSA’s client money rules. Under the FSA’s client money rules, firms are required to keep client money separate from the firm's money in segregated accounts with trust status. A firm must have a trust letter from the bank holding its client money to ensure that, in the event of the firm’s insolvency, client money is clearly identifiable and is ring-fenced from the firm’s own assets so that it can be promptly returned.
The firm failed to obtain a trust letter in respect of 22 segregated off-shore retail client bank accounts, which contained an average balance of £666,000.
The FSA has issued several communications to firms on the rules for protecting client money, so firms are aware this is a high profile issue. The firm missed several opportunities to review its client money arrangements in relation to these 22 off-shore accounts so the error remained undetected by the firm for over four years, between May 2006 and August 2010.
Richard Sutcliffe, head of the client assets unit, said: The firm’s "failure to check whether it had a trust letter in place for these 22 accounts exposed its clients to risk in the event of insolvency. There is no substitute for a trust letter as it confirms client money is ring-fenced from the firm’s own assets, readily identifiable and aids the prompt return to clients. The FSA has repeatedly emphasised the importance of ensuring that client money is adequately protected and firms of all sizes must ensure client money is segregated and that this is acknowledged with a trust letter in accordance with FSA rules."
Source: Financial Services Authority
Since the beginning of 2011, the FSA has received an increasing number of queries from firms and trade bodies about legacy commission in connection with Adviser Charging. This led them to review previous communications on this issue, and it became clear that the effect of the rules that had been made in PS10/6 banning new commission for advised sales of retail investment products had not been properly understood by some firms.
In March 2011 FSA circulated a note to trade bodies setting out their understanding of the position, and held discussions with a number of them on this issue. The FSA state that they have taken these discussions into account when preparing this paper.
Chapter 2 summarises the comments that were made to the FSA, and sets out their view on them. It also explains the approach the FSA has adopted in the draft guidance contained in Appendix 1.
Comments by 16 January 2012
Source: Financial Services Authority
The FSA has taken action against five individuals suspected of involvement in land banking by way of an unauthorised collective investment scheme (UCIS).
With the assistance of the City of London Police, the FSA executed search warrants on nine premises in Kent and Greater London and five individuals were arrested. Nobody has been charged at this stage in connection with the FSA's investigation, which is ongoing. The FSA cannot comment further at this time.
Source: Financial Services Authority
The FSA has fined an individual insurance broker £195,117 for insurance fraud and prohibited him from carrying on regulated financial services. The penalty is made up of a £70,000 fine and the disgorgement of £125,117 which the broker obtained through commission.
The broker was a director and adviser at a small mortgage and insurance intermediary in Brentwood, Essex. Between January 2008 and September 2009 the broker submitted at least 54 applications for life assurance and protection policies in his name, his wife's name and in the name of family members. He made these applications without their knowledge and in three of them he also falsified signatures of family members.
In each case the broker provided his own bank account details so that direct debit payments could be taken by the insurance providers. Ostensibly, the broker aimed to keep up with the premiums, but when his money began to run out he took out further policies to secure more commission to cover the outstanding payments. Before long however this process of ‘churning’ made the providers suspicious and they contacted the FSA.
The broker used his own address as the point of correspondence so that the people he was impersonating would never become suspicious when they received insurance documents out of the blue. When documentation was occasionally sent to family members he lied to them to conceal his true intent by saying he was submitting ‘sample policies’. He destroyed policy documents as soon as he received them so that he kept no audit trail of his wrongdoing.
The broker used his own address as the point of correspondence so that the people he was impersonating would never become suspicious when they received insurance documents out of the blue. When documentation was occasionally sent to family members he lied to them to conceal his true intent by saying he was submitting ‘sample policies’. He destroyed policy documents as soon as he received them so that he kept no audit trail of his wrongdoing.
Tom Spender, head of retail enforcement at the FSA, commented: ''This is a significant fine to reflect significant failings. [The broker] took advantage of his position as an FSA approved individual for his own personal gain, and at the same time took advantage of his close family. The FSA concluded that he lacks honesty and integrity. [His] actions tarnish the industry’s reputation, and that is why we continue to pursue these cases and publish the findings. Anybody working in the industry who is tempted to commit any type of insurance fraud should note the consequences of their actions.''
Source: Financial Services Authority
Sheila Nicoll, Director of Conduct Policy, at the FSA, addressed the Mortgage Business Expo. Stating that, unlike the previous year, she would not be talking about the Mortgage Market Review (MMR) as FSA “was completing our final analysis for the impending consultation. This means, unfortunately, there isn't too much that I can say about it today.”
However the areas she did comment on were as follows:
- Europe
- Regulatory Reform
- FSA’s approach to authorising firms
- The regulatory review process – in particular a regular review of all small firms, which will involve looking at how effective senior management are in identifying and addressing risks, and the controls they use to do this, plus financial soundness. These reviews will begin in February 2012, starting with firms in the North West of England. The format of the review will either be a face-to-face or telephone interview with one of our supervisors, or through completing an online assessment, depending on what we see as the risks inherent in each firm’s business model.
- Using workshops such as TCF Assessment Programmes or RDR workshops
- Issues in the present mortgage market
In conclusion, Ms Nicoll stated “We are clearly living in a time of constant, and sometimes unexpected, change. The market is very different from before – and in the world of regulation you can expect to see new organisations, new standards and a new supervisory approach. There is a great deal for us all to take on board, but we are committed to recognising and building on the progress made – and that changes are for the better, not for change’s sake.
As I hope I've been able to spell out today, these changes are all of great significance to your business. Our next step will be the MMR Consultation Paper we will be publishing very shortly. Through this, we will be looking for your help in ensuring that in the new world the market is one with more stable foundations.”
Source: Financial Services Authority
If you’re a small firm in the North West of England
and having read the above wonder whether a health-check
prior to February 2012 might be an advisable move
just get in touch with us for a no obligation quotation.
We cover the entire United Kingdom and have
a substantial highly trained team based in Leeds.
The first City executive to be fined for wrongdoing committed not by him but by his staff has begun a challenge against a £100,000 penalty imposed by the FSA. This could have implications for future FSA actions. The individual was not accused of committing an offence. However the FSA claimed that he failed to address serious flaws in UBS’s wealth management controls when he took over management in 2006, leading to unauthorised trading and improper conduct.
Source: The Times
The Consulting Consortium shall watch this with great interest.
Our advice is “don’t go there in the first place”.
If you’re appointed as an Approved Person with a Significant Influence Function,
why not ask us to review management controls and make recommendations
of best practice for you and your firm?
Thus, going forward, FOS has to release information in response to a valid FOIA requests wherever possible, unless an exemption applies. In addition, if information is to be withheld pursuant to an exemption, the public interest in withholding the information must outweigh the public interest in releasing the information.
