Compliance News - 25 November 2011
CC:ME WEEK ENDED 25 NOVEMBER 2011
The Financial Services Authority (FSA) has fined a former Compliance Officer £14,000, reduced from £20,000 for settlement, and banned her from performing any significant influence function in regulated financial services for breaching Principle 6 of the FSA’s Statements of Principle for Approved Persons. The individual was Compliance Officer at a hedge fund management company based in London (and Milan).
In the wake of the collapse of Lehman Brothers, the investment strategy adopted by the hedge fund management company for the fund it managed resulted in losses totalling approximately 85% of the fund’s total assets under management. To conceal the losses, in late 2008, a senior employee at the firm entered into a number of contracts, on behalf of investment funds managed by the firm, for the purchase and resale of a bond (the Bond).
Various investors raised concerns that the Bond was of doubtful provenance and legitimacy, and the firm’s Prime Broker resigned as a result of its concerns. The Compliance Officer failed to consider the reasons for the Prime Broker resigning and, despite being aware of the investors´ concerns about the Bond, she failed to properly investigate those concerns or act upon the information.
In doing so, she did not engage with her responsibilities as Compliance Officer and therefore failed to act with due skill and care. She relied wrongly on another employee of the firm, and on her belief that external lawyers were instructed and would have acted on concerns as appropriate.
Tracey McDermott, acting director of enforcement and financial crime, said: The 'failure, as Compliance Officer, to challenge a colleague, investigate and act on the information she received, resulted in [the firm] and the FSA being unable to take appropriate action. The individual “took far too narrow a view of her role as a Compliance Officer. She failed to understand the importance of her role and the wider regulatory obligations it brings. 'The FSA is committed to driving up standards across the industry and will take robust action against those who do not meet our standards.''
Source: Financial Services Authority
FSA website
The Financial Services Authority (FSA) has taken action against two individuals suspected of providing financial advice when not authorised to do so and making misleading statements to investors.
With the assistance of the West Midlands Police, the FSA executed search warrants on three premises in the West Midlands and two 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
FSA website
FSA website
Don’t let Rufus, Tiger or Rupert savage those lovely people from the FSA, as they have just challenged three insurance firms for the terms of their pet insurance policies which they viewed as unfair under the Unfair Terms in Consumer Contracts Regulations 1999, in respect of which the FSA is a qualifying body.
The terms in the Direct Line insurance policy were deemed to be unfair and after discussions with RBS insurance firms, a Notice of Undertaking has been published setting out the before and after wordings. The three RBS insurance firms are Direct Line, Churchill and UK Insurance. As UK Insurance has other partnership relationships, they have agreed with their other partners to adopt the new wordings: these are: Lloyds TSB, NatWest, Royal Bank and Virgin Money Pet Insurance.
FSA commented “We remind firms of the Insurance Conduct of Business Rule 6.1.5, which states that: ‘A firm must take reasonable steps to ensure a customer is given appropriate information about a policy in good time and in a comprehensible form so that the customer can make an informed decision about the arrangements proposed.’ The RBS insurance firms were fully cooperative in providing this undertaking to us.”
The RBS Insurance firms have also confirmed that:
- the significant treatment limits will also be included in the Key Facts document; and
- the treatment limits are exhaustive, and the customer’s claim will otherwise be covered in full subject to the terms and conditions of the remaining policy documentation.
Source: Financial Services Authority
FSA website
FSA website
The Financial Services Authority (FSA) has announced the appointment of Sir Nicholas Montagu KCB as the new chairman of the Financial Ombudsman Service (FOS). The service settles complaints between consumers and businesses providing financial services.
Sir Nicholas is currently the chairman of the Aviva UK Life With-Profits Committee, a director of the Pension Corporation and is a former chairman of the Board of Inland Revenue.
Lord Turner, FSA chairman said:
“Nick has had a distinguished career and brings a wealth of experience in demanding board positions. His predecessor, Sir Christopher Kelly, steered the Ombudsman Service through challenging periods, and the next few years will be no easier. This role needs a customer-service champion to help shape the Ombudsman's future role in the new regulatory structure, and that is what we have with Nick.”
Sir Nicholas Montagu said:
“I am delighted to have been appointed chairman of the Financial Ombudsman Service. It is a strong and innovative organisation, which over the last ten years has been recognised for the increasingly significant role it plays. I look forward to working with Natalie Ceeney and her colleagues as we meet the challenge of providing an ever-improving service, with customer demand set to reach record levels.”
Source: Financial Services Authority
FSA website
FSA website
Andrew Bailey, Director of UK Banks and Building Societies addressed the Future of Retail Banking Conference in London last week. He broke his speech into two unequal halves: in the first half he spoke about the pressures on the industry, and the pressures in retail banking today. In the second half he drew on his experiences of seven years as the Chief Cashier of the Bank of England to talk about one or two of the conclusions that he had reached from what he saw of the banking industry in that role.
He concluded by stating “challenges are everywhere. Today, there is huge pressure on the retail banking industry. But there are huge opportunities to change the model, and above all, give the public what it wants at a fair price, with transparent terms.”
Essential reading for anyone in the banking and building society sectors.
Source: Financial Services Authority
FSA website
FSA website
Lord Turner delivered The Presidential Lecture at the Centre for Financial Studies in Frankfurt last week. He focussed on the role of debt in the economy, under three headings as follows:
· Private debt creation
- Distinctive characteristics of debt
- Drivers of excessive and volatile leverage
- Required policy levers and reforms
- Money supply or credit supply as the policy focus?
· Public debt of full sovereigns and subsidiary sovereigns
- Distinctive characteristics of sovereign debt
- Policy bias drivers of excess sovereign debt
- Distinguishing full sovereign and subsidiary sovereign debt
Magaging the deleveraging challenge
- Four route to deleveraging
The summary conclusions were set out By Lord Turner as follows:
Larry Summers has stressed that the central paradox of a recession which follows a credit boom, is that while we got into the mess through too much borrowing, and too little saving, too high levels of leverage in public, corporate, household and financial sectors – if we all try to get out of it just by saving more, borrowing less and deleveraging, by paying off our debts, we will produce a still deeper recession which drives leverage, at least for a time, still higher.
The implication is that we need policies to smooth the path of deleveraging: but if we do that, the danger is that we never actually remove the vulnerabilities that have built up.
How to square the circle? What combination of policies is now required, both to create a sounder long-term system and to get us out of present problems? The answer is that the optimal solution must combine radical reforms which address both the excesses of the private financial system and the structural faults of the Eurozone, and that the transition must be underpinned by policies which maintain aggregate demand.
The starting point has to be clear recognition that:
- The level of debt in a economy is fundamental to its financial and economic stability, and free markets can result in aggregate debt levels far above optimal levels, in volatile levels of debt, and in sub-optimally allocated debt.
- Sovereign debt is a very particular form of debt and subsidiary sovereign debt quite different from full sovereign debt. The Eurozone construct was flawed because of a failure to face that fact.
- Deleveraging is a huge challenge, which cannot be smoothly achieved unless aggregate demand is adequately maintained.
This analysis pushes us towards a combination of radical reforms and policy actions:
· Private leverage and bank maturity transformation has to be constrained by capital and liquidity standards far higher than those which had developed pre-crisis. We must not divert from the Basel III reforms. And we need powerful macro-prudential levers to contain credit and asset price cycles.
· The Eurozone architecture needs to combine tight political and market discipline of subsidiary sovereign debt with the creation of Eurobonds, and with an acceptance that if necessary the ECB can conduct quantitative easing operations at the Eurozone aggregate level.
· Aggregate demand has to be maintained, and if necessary should be via the ultimate tool of central bank debt monetisation. And central bank radicalism in monetary policy is a preferable way to maintain aggregate nominal demand than devices which delay the application of prudential standards, since these will only maintain nominal demand at the expense of also maintaining dangerously high leverage.
Source: Financial Services Authority
FSA website
FSA website
The ABI has responded to the FSA’s guidance consultation on simplified advice. In its response, the ABI stressed the need to allow more consumers to have their financial needs and wants addressed.
Maggie Craig, Director of Financial Conduct Regulation, ABI, said: “We have consistently supported the RDR, not least because we hope it will increase consumer confidence in financial advice. But a core objective of RDR was to widen consumer access to financial products and currently that is the missing link. For it to be a success, we need a viable simplified advice model. The proposals put forward by the FSA are a step in the right direction but more needs to be done to ensure that consumers have their advice needs met. We urge FSA to work with the industry and consumer groups to make simplified advice work.”
ABI research in 2010 into the cost of advice found that ‘full’ financial advice typically takes seven hours and 40 minutes to deliver end-to-end and costs £670 in total. This is beyond the reach of two-thirds of the UK adult population. A recent ABI consumer survey suggests this advice gap could be exacerbated by adviser charging. The survey found that 48% of consumers would be unwilling to pay for professional financial advice, and a further 35% were only willing to pay less than £100 for financial advice. This suggests there needs to be an affordable alternative for consumers with more straightforward needs.
The ABI believes that the draft guidance on simplified advice is a step forward. It recognises the benefits of a well-designed, low-cost method of meeting consumers’ straightforward investment advice needs, and it addresses industry uncertainty about aspects of the regulatory regime. The ABI has suggested a number of changes to improve the framework to make it more commercially viable for a large number of firms to help tackle the advice gap. These changes focus on the role of an individual facilitating the process and the level of assessment of a consumer’s individual broader circumstances a simplified advice process is required to undertake.
Maggie Craig, Director of Financial Conduct Regulation, ABI, said: “We have consistently supported the RDR, not least because we hope it will increase consumer confidence in financial advice. But a core objective of RDR was to widen consumer access to financial products and currently that is the missing link. For it to be a success, we need a viable simplified advice model. The proposals put forward by the FSA are a step in the right direction but more needs to be done to ensure that consumers have their advice needs met. We urge FSA to work with the industry and consumer groups to make simplified advice work.”
ABI research in 2010 into the cost of advice found that ‘full’ financial advice typically takes seven hours and 40 minutes to deliver end-to-end and costs £670 in total. This is beyond the reach of two-thirds of the UK adult population. A recent ABI consumer survey suggests this advice gap could be exacerbated by adviser charging. The survey found that 48% of consumers would be unwilling to pay for professional financial advice, and a further 35% were only willing to pay less than £100 for financial advice. This suggests there needs to be an affordable alternative for consumers with more straightforward needs.
The ABI believes that the draft guidance on simplified advice is a step forward. It recognises the benefits of a well-designed, low-cost method of meeting consumers’ straightforward investment advice needs, and it addresses industry uncertainty about aspects of the regulatory regime. The ABI has suggested a number of changes to improve the framework to make it more commercially viable for a large number of firms to help tackle the advice gap. These changes focus on the role of an individual facilitating the process and the level of assessment of a consumer’s individual broader circumstances a simplified advice process is required to undertake.
Source: Association of British Insurers
Young novice drivers should not be allowed to drink any alcohol while driving and be restricted in the hours when they can drive under radical proposals set out by the ABI to cut the high level of deaths and serious injuries involving young drivers. Young drivers aged under 25 are twice as likely to fail a breathalyser test and more at risk when driving late at night and early in the morning.
One in four people killed or seriously injured in a road crash is a young driver or one of their passengers, yet drivers under age 25 account for only 12% of all driving license holders. Every day 2 people die and 16 people are injured in road crashes involving drivers under 25. Young male drivers are especially at risk, being five times more likely to be involved in a crash than 30-59 year old males.
“Our proposals are not designed to drive young drivers off the road, but to ensure that they become safer drivers. We must act to reduce the tragic loss of young lives on our roads”, stressed Nick Starling, ABI’s Director of General Insurance and Health.
The ABI wants to see for learner drivers aged under 25:
One in four people killed or seriously injured in a road crash is a young driver or one of their passengers, yet drivers under age 25 account for only 12% of all driving license holders. Every day 2 people die and 16 people are injured in road crashes involving drivers under 25. Young male drivers are especially at risk, being five times more likely to be involved in a crash than 30-59 year old males.
“Our proposals are not designed to drive young drivers off the road, but to ensure that they become safer drivers. We must act to reduce the tragic loss of young lives on our roads”, stressed Nick Starling, ABI’s Director of General Insurance and Health.
The ABI wants to see for learner drivers aged under 25:
· A minimum one-year learning period before taking the driving test. A minimum learning period applies in many other countries.
· A ban on taking intensive driving courses where this is the sole means of learning to pass the driving test. This would enable learner drivers to gain experience in a wider variety of road conditions.
For newly-qualified drivers aged under 25:
· All new drivers should hold a graduated driving licence for two years, at the end of which they should be required to pass a second test to ensure that they are safe to drive on all types of roads.
· The graduated driving licence would contain restrictions on the number of passengers that could be carried. This reflects the significantly increased accident risk when other passengers are in the car. It would also include restrictions on driving between 11pm – 4am, albeit with certain exemptions, such as where driving is necessary due to work.
Source: Association of British Insurers
The urgent need to reduce young driver deaths and serious injuries is one of the five key priorities for the motor insurance industry to deliver a better deal for its customers the ABI said last week. Speaking at the ABI Motor Conference, Otto Thoresen, ABI’s Director General said: “As a nation of car users with some of the busiest roads in the world, insurers are committed to providing the best possible deal for motorists. One of the key ways to achieve this has to be improving the safety of our young drivers, who continue to make up a disproportionate number of road casualties. Five years ago we called for measures, such as a minimum learning period, to tackle this tragic waste of life, yet every day 18 young people die or are seriously injured on our roads.
“Insurers are actively helping young drivers through the increasing use of telematic ‘black box’ systems that reward safer driving. But we cannot do this alone. So I reiterate our call to the Government to work with us to tackle this issue. The time has come to seriously consider tougher measures such as a zero tolerance drink-drive limit for drivers under 25, graduated licencing, and restrictions on driving at night and in the early hours.”
Otto Thoresen also outlined the other priorities for motor insurers around tackling the rising costs of whiplash, compensation reform, fraud and uninsured driving
“With one person now claiming whiplash on average every minute we must seek better diagnosis of genuine claims, while making it harder to make a fraudulent claim for neck injuries. The long overdue reforms to our dysfunctional compensation system will benefit genuine claimants, deter fraud and, crucially, reduce the excessive legal costs in paying out personal injury claims.
“Latest initiatives in the fight against fraud will see, in early 2012, a new dedicated police insurance fraud unit and an insurance fraud register. And the crackdown on the menace of uninsured driving continues to bear fruit with the number of these illegal and dangerous motorists falling.”
“Few insurance products provoke opinion more than motor insurance. Motorists rightly expect the best value for money products and high standards of service. The industry must continue to up its game to ensure that their expectations are met.”
“Insurers are actively helping young drivers through the increasing use of telematic ‘black box’ systems that reward safer driving. But we cannot do this alone. So I reiterate our call to the Government to work with us to tackle this issue. The time has come to seriously consider tougher measures such as a zero tolerance drink-drive limit for drivers under 25, graduated licencing, and restrictions on driving at night and in the early hours.”
Otto Thoresen also outlined the other priorities for motor insurers around tackling the rising costs of whiplash, compensation reform, fraud and uninsured driving
“With one person now claiming whiplash on average every minute we must seek better diagnosis of genuine claims, while making it harder to make a fraudulent claim for neck injuries. The long overdue reforms to our dysfunctional compensation system will benefit genuine claimants, deter fraud and, crucially, reduce the excessive legal costs in paying out personal injury claims.
“Latest initiatives in the fight against fraud will see, in early 2012, a new dedicated police insurance fraud unit and an insurance fraud register. And the crackdown on the menace of uninsured driving continues to bear fruit with the number of these illegal and dangerous motorists falling.”
“Few insurance products provoke opinion more than motor insurance. Motorists rightly expect the best value for money products and high standards of service. The industry must continue to up its game to ensure that their expectations are met.”
Source: Association of British Insurers
Over zealous interpretations of health and safety rules for the voluntary sector and small businesses are tackled in a new guide published by the ABI. The guide gives simple, practical advice to businesses and the voluntary sector to help them assess risk without burdening themselves with excessive concerns. It also offers tips on getting a competitive insurance quote and building evidence of risk management that can be used in defence of a claim.
The five straightforward principles of the guide are:
1. Get evidence of senior management commitment on health and safety issues
2. Designate a competent person to be responsible for health and safety or seek an external specialist
3. Adopt a structured approach to planning, monitoring and reviewing health and safety
4. Complete a suitable and sufficient risk assessment
5. Encourage employees to be supportive of health and safety practices.
Source: Association of British Insurers
Essential reading for all those involved in complaints resolution, this edition contains:
- banking complaints involving cheques;
- insurance disputes about storm and weather damage;
- outgoing chairman, Sir Christopher Kelly, on the highlights of his decade with the ombudsman service; and
- Natalie Ceeney, chief ombudsman, on why PPI remains the big issue for the ombudsman service.
Source: Financial Ombudsman Services
