Compliance News - 17 December 2010
FSA WARNS IFAs ON UCIS SOLD THROUGH SIPPS
The FSA has stepped up its attack on unregulated collective investment scheme sales and raised concerns about Ucis sold within a Sipp.
Speaking at an FSA investment managers and private equity event in Canary Wharf last week, head of savings and investments Linda Woodall said in some cases IFAs have told customers to remortgage their houses and put the money in Ucis.
She warned that others have placed clients in Ucis within high-charging Sipps when they are not the most appropriate vehicle.
Woodall said this lack of concern about the products being recommended “poses a reputational risk to both the IFA and asset management sectors”.
She said 131 Ucis files were reviewed by the regulator in the Summer and in 58 of the files advisers recommended their customers invest or transfer existing pensions into a Ucis within a Sipp.
She said: “To make it worse, the firms involved did not consider, or explain, the implication of costs and charges of the recommended Ucis, and, in a number of cases, it was not evident that a Sipp was the most appropriate vehicle for the customer’s pensions need.”
Woodall said typical Sipp charges can include an 8 per cent initial charge, a 2 per cent annual management charge, a £500 up-front administration charge, a 5.9 per cent transfer penalty and fees of 5.6 per cent.
She said: “These are significant costs, and should be explained to the customer.”
In August the FSA announced it had told 11 firms to stop promoting the products and warned that the providers were using aggressive sales techniques, such as offering trips abroad and high commission.
Meanwhile, Woodall also hinted that the FSA has turned its attention to the marketing of so-called ‘cautious managed’ funds, which aim to reduce client losses in volatile markets by capping equity exposure.
She said: “[Customers] also rely on the clarity and quality of the documentation they receive from both their adviser and the asset manager to make informed decisions. So, for example, to describe a fund as being in the cautious managed sector, without a clarification on the actual risks inherent in the fund, could lead a client to think this is low risk.”
FSA – NEW DEPOSIT GUARANTEE LIMIT RISES TO £85,000
The Financial Services Authority (FSA) has confirmed that the new deposit compensation limit for the United Kingdom will increase from £50,000 to £85,000 per person, per authorised firm, from 31 December 2010. This is the Sterling equivalent of the €100,000 deposit compensation limit which comes into force in all European Economic Area (EEA) member states at the end of the year.
Further changes coming into effect on 31 December 2010 are:
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Fast payout rules, with a target of a seven day payout for the majority of claimants and the remainder within the required 20 days.
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Gross payout, which protects customers by ring fencing their deposits if they have savings and loans with the same firm. Currently, any outstanding loan or debt would be deducted from any compensation.
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This new pan European requirement replaces the existing UK arrangement which has been in place since 2009, and which allowed for separate compensation cover for customers with deposits in two merging building societies.
Source: Financial Services Authority
FSA – PUBLISHES REVISED REMUNERATION CODE
The Financial Services Authority (FSA) has published an updated Remuneration Code to take into account changes required by the Capital Requirements Directive (CRD3). The FSA’s existing Code requires firms to apply ‘remuneration policies, practices and procedures that are consistent with and promote effective risk management’. It applies to the largest banks, building societies and broker dealers. The revised Code will not only apply to these firms but will encompass a much larger group of firms including all banks and building societies and CAD investment firms – some 2700 in total.
CRD3 aims to align remuneration principles across the EU. The FSA has worked closely with EU colleagues to prepare for the implementation of CRD3, and will keep in close contact with them – both via the Committee of European Banking Supervisors (CEBS) and bilaterally – to ensure continuing close alignment of supervisory practices in future.
The main changes to the previous proposals which the FSA consulted on are as follows:
- Proportion in Shares – CEBS guidelines state that at least 50% of variable remuneration should consist of shares (or other specified instruments) and that this should be applied equally to both the deferred and undeferred portions.
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Retention period – CEBS guidelines state that variable remuneration paid in shares (or other specified instruments) should be subject to an appropriate retention period.
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Guaranteed bonuses – Provisions on guaranteed bonuses should be applied on a firm-wide basis and not just to ‘Code staff’, in line with both CEBS guidelines and the FSB standards.
Proportionality
A proportionate approach will be applied to implementation of the Code in line with the purpose of the existing code to ensure remuneration policies promote effective risk management. Accordingly there will be four tiers of firms with differing minimum expectations of compliance for each group:
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Tiers one and two - contain credit institutions and broker dealers that engage in significant proprietary trading/investment banking activities – this will include the firms currently within scope.
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Tier three – consists primarily of small banks and building societies and firms that may occasionally take overnight/short-term risk with their balance sheets.
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Tier four – firms generate income from agency business without putting their balance sheets at risk.
Proportionality will also be applied across the range of firms in each tier in order to avoid sharp differences between applying the Code to firms at the lower end of one tier and the higher end of the next. Further, firms in tiers three and four will not be expected to apply rules where the CEBS guidelines suggest they can be disapplied. The most significant of these are: the requirement to have a UK-based remuneration committee, deferral, and the proportion of variable remuneration paid in shares. For other rules, the FSA will apply a discretionary approach that is likely to result in less-onerous requirements.
Timing
Firms already within the scope of the FSA’s Remuneration Code are required to comply in full with the revised Code from 1 January 2011. For other firms that are coming within scope for the first time there will be transitional rules in place. These firms must comply as soon as reasonably possible, and by 31 July 2011 at the latest.
Disclosure
Concurrently, the FSA has also published new rules implementing CRD3’s requirements on disclosure of remuneration. Under these rules, firms will be required to disclose information on their remuneration policies and pay-outs. The FSA consulted on this in a separate consultation paper published on 10 November 2010. The majority of respondents agreed with the FSA’s approach and as such:
- Firms will need to disclose details of their remuneration policies at least on an annual basis.
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The FSA will require firms to make their first disclosure in respect of 2010 remuneration as soon as practicable, and no later than 31 December 2011.
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Proportionality will be applied on the basis of the FSA’s four tiers as previously consulted on. Firms in the top tier will need to make full disclosure, while firms in lower tiers will be subject to less onerous requirements.
Source: Financial Services Authority
FSA – CHANGES TO TRAINING AND COMPETENCE REGIME
The Financial Services Authority (FSA) has published final rules to strengthen training and competence requirements for all individuals carrying out customer facing regulated retail activities. The rules also clarify FSA expectations regarding standards of behaviour for all approved persons.
Reflecting the FSA’s increased focus on competence, the proposals introduce a 30 month deadline for individuals to complete all modules of a qualification required for their role. The rule will be introduced from 1 January 2011.
Qualifications that meet FSA regulatory requirements will now be listed in the FSA Handbook so that firms and individuals will have an easily accessible and comprehensive source of approved qualifications. The FSA will also own and oversee the production and changes to examination standards in future ensuring that standards are reviewed every three years.
Further changes clarify how individuals operating under the Significant Influence Function should be responsible for ensuring the competence of employees in their designated area of the business.
Peter Smith, head of investments policy at the FSA said:
"Competence and approved persons requirements are key elements of our regulatory regime and over the last few years we have increased our scrutiny of individuals working in the financial services industry. The new rules strengthen and clarify our overall competence requirements and ensure firms and individuals are maintaining standards of competence and behaviour at an appropriate level."
Source: Financial Services Authority
The Financial Services Authority was due to publish its RDR professionalism policy statement in December 2010. However, the FSA wanted to ensure that it had an opportunity to provide the Treasury Select Committee with a comprehensive rationale about why it remains committed to delivering the RDR. The FSA plans to publish final rules and policy statement in January 2011.
The FSA remains fully committed to implementation of the RDR in January 2013.
Source: Financial Services Authority
FSA – CHAIRMAN WRITES TO THE TREASURY SELECT COMMITTEE ON RBS
Lord Turner has written to the Chairman of the Treasury Select Committee in light of criticism arising on the FSA’s handling of the RBS situation. He stated:
“I very much agree with the Committee that it would be desirable if there were a public account of the reasons for the failure of RBS, and as both Hector Sants and I have stressed over the last week, the present situation, in which we are unable to release the results of the investigation so far conducted is extremely unsatisfactory. I therefore believe that a way should be found both to create a more appropriate regime for the future, and to allow the publication of a report into RBS specifically.”
He then proposed a way forward and concluded “We do not envisage a detailed blow-by-blow account, but a clear description of any key failings, whether related to FSA supervisory processes or to the decisions made by the Board and Executives of the bank. We would suggest delivering the report to the Government and the Treasury Select Committee by the end of March.”
Source: Financial Services Authority
FSA – MORTGAGE LENDERS ROUND-UP NEWSLETTER
This covers the following topics:
- Changes to the Approved Persons regime
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Consulting on distribution and disclosure
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Information From Lenders (IFL) scheme
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Arrears and capitalisation figures published
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FSA and firms reach agreement on Mortgage Payment Protection Insurance (MPPI)
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Recent speeches
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Forthcoming events
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Outsourcing arrears handling and call recording rules
Source: Financial Services Authority
CML – FSA MUST BE PROPORTIONATE SAYS MINISTER
Having already voiced concerns about the impact of regulatory reform on the availability of mortgage funding, housing minister Grant Shapps has now called on the Financial Services Authority (FSA) to introduce “proportionate” regulatory reform and “avoid unnecessary prescription on the mortgage industry.”
In a House of Commons written answer on 2 December, Mr Shapps said:
“The new government are committed to supporting aspiration to home-ownership and shares the underlying objective of the mortgage market review to create a stable, sustainable market for all participants. We must avoid the boom and bust that the property market has experienced in the last decade. We want to see a regulatory structure that supports access to home-ownership and new housing supply while preventing repossessions. The government believe the FSA’s changes must be proportionate and avoid unnecessary prescription on the mortgage industry. My officials have worked closely with the FSA and the Council of Mortgage Lenders on these proposals and will continue to do so.”
The minister’s comments came in answer to a written question from Conservative MP Robert Syms. Mr Syms had asked what discussions the minister had had with the FSA on assessing the impact of its mortgage market proposals on house prices; whether he had assessed their effect on the housing market and the supply of new homes; and whether he had discussed with the CML the likely impact on the housing market of the FSA’s proposals.
Source: Council of Mortgage Lenders
FOS – NEW EDITION OF OMBUDSMAN NEWS PUBLISHED
A new edition has been published covering three main topics as follows:
1. Financial complaints involving family disputes and difficulties in close personal relationships
This month FOS feature a variety of recent cases where consumers are in dispute with a financial business and alsoin dispute with a family member – or experiencing serious difficulties in a close personal relationship. In some instances a difficult domestic situation – such as the aftermath of death, separation or divorce – has been the trigger that leads to a financial complaint. In other cases, underlying family tensions or communication breakdowns have contributed to – or complicated – a problem with a financial product or service. It is, of course, by no means unusual for us to see complaints where the consumers concerned find themselves in difficult or distressing circumstances. Dealing with such cases requires a high degree of sensitivity – coupled with objectivity – as we disentangle the consumer’s personal and family issues from those that relate solely to the financial complaint – in order to analyse the facts and reach a fair and impartial conclusion.
2. Myths and truths about the Ombudsman Service
Over nine out of ten businesses the FOS covers don’t actually have complaints referred by customers. As these businesses have little or no direct contact with FOS, many tend to rely on what they hear about the FOS from others – rather than asking FOS direct. This means that myths can circulate which may be several steps removed from the reality. The edition of Ombudsman News then goes on to quote some of the myths they hear most often about the ombudsman service – and the answers, straight from the horse’s mouth.
3. Q&A
Source: Financial Ombudsman Service
