Industry News Flash: Compliance News - 10 June 2011
INDUSTRY NEWSFLASH WEEK ENDED 10 JUNE 2011
The FSA has just published a “Dear CEO” letter signed by Margaret Cole which comprises essential reading for all Wealth Management companies. Responses are demanded by 9 August 2011. The letter starts by stating “We have recently reviewed the suitability of client portfolios in a sample of firms in the wealth management industry. We have identified significant, widespread failings, which we are concerned may also be prevalent in firms outside our sample. In this letter we explain the issues we have identified and ask you to consider whether your firm meets – and can demonstrate that it meets – our suitability requirements.
The results from the review include:
- 14 out of 16 firms were judged to pose a high or medium-high risk of detriment to their customers, based on the number of client files which had a high risk of unsuitability or where the suitability could not be determined.
- Overall, 79% of files reviewed had a high risk of unsuitability or the suitability could not be determined.
- 67% of the files reviewed were not consistent with one or more of the following: the firm’s house models; the client’s documented attitude to risk; and the client’s investment objectives.
FSA go on to state “If you have not recently assessed the suitability of your client files, you may want to consider:
- sampling a meaningful number of client files;
- assessing whether files have relevant, meaningful, accurate and up-to-date client information;
- the depth, breadth and quality of client information; and
- whether the client portfolios, and the current holdings in client portfolios, are suitable, based on the documented client information you hold.”
The Consulting Consortium can assist you with such reviews and, given the extreme urgency of this work, its extensive nature and the implied threat within the letter, please get in touch with us as soon as possible for a discussion as to how we can best assist you.
Source: Financial Services Authority
The Financial Services Authority (FSA) has published its feedback statement summarising the responses to its Product Intervention discussion paper (DP), published on 25 January 2011. The DP proposed a new direction for retail financial services regulation, moving away from an approach largely focused on point-of-sale, to one that actively regulates all aspects of the product life cycle, including the design, development and management of products.
The feedback statement summarises the feedback received so far; considers the place of product intervention in relation to other relevant projects; and outlines the action already being taken and the next steps.
The FSA received a wide range of constructive responses from consumer organisations, individual consumers, industry associations and individual firms. It also ran a series of six roundtable events with representatives of different industry sectors and consumer organisations to debate the issues arising from the DP.
The DP and feedback statement are an important part of the wider debate about the future of financial regulation in the UK and the regulatory philosophy to be adopted by the Financial Conduct Authority. The FSA will shortly publish a paper offering more detail on this.
Source: Financial Services Authority
The FSA has published guidance consultation on this topic. The consultation period is 8 weeks (closing date 8 August) and many readers will be interested in examining this paper.
In 2010, FSA conducted thematic work on price comparison websites (aggregators). The objective of the project was to clarify the aggregators’ business models focusing on general insurance services and their inherent risks. This built on previous work FSA undertook on price comparison firms in 2008 which is published on the FSA website. Ten firms including the 4 market leaders were interviewed or visited and the websites of a further 9 directly-authorised firms, and the websites they white-labelled.
FSA is proposing this guidance because they found there to be a lack of understanding within the industry generally about the regulated activity being conducted by these firms, leading to failures to comply with FSA rules, which could lead to consumers not being treated fairly.
The key issues are as follows and firms are being asked to:
- Review their regulated activities, ensure they are appropriately authorised or otherwise exempt.
- Ensure they only enter into contracts with firms holding the appropriate authorisation and permissions to conduct that regulated activity (or who are exempt).
- Withdraw their assistance from third parties if the party is in breach of the general prohibition.
- Review their disclosure documentation, sales procedures and terms and conditions and make sure that these are compliant with all relevant regulatory requirements including our Principles, ICOBS and the Unfair Terms in Consumer Contracts Regulations 1999. In particular, they should ensure they comply with requirements on:
-
customer eligibility;
- status disclosure;
- advice suitability;
- providing a proper statement of demands and needs; and
- do not seek in their terms and conditions to exclude liability for the regulated activities they are undertaking.
- Establish, implement and maintain adequate policies and procedures to ensure the firm complies with all relevant obligations under the regulatory system and for countering the risk of furthering financial crime, in particular breaches of the general prohibition and restrictions on financial promotion.
Source: Financial Services Authority
The Financial Services Authority (FSA) has published its annual report for 2010/11, outlining its performance against the priorities set out in its 2010/11 Business Plan and its statutory objectives.
In his foreword, FSA chairman, Adair Turner, described the regulator’s progress in preparing and implementing the structural changes announced by the Chancellor in his Mansion House speech in 2010. He emphasised the achievements of the FSA during the last year and the organisation’s continued focus on delivering its objectives.
The Annual Report highlights four main areas of progress:
1. The FSA’s progress in executing a credible deterrence and enforcement approach throughout 2010/11, including:
- five criminal convictions for insider dealing with sentences ranging from 12 months to three years and four months;
- 15 penalties levied for market abuse, totalling £8,342,804; and
- 13 defendants currently awaiting trial for insider-dealing offences with trial dates fixed for November 2011, February 2012 and April 2012.
2. The launch of a radically new approach to the protection of retail customers, with a willingness to intervene earlier, as highlighted by:
- Securing greater redress for consumers, as highlighted by recent legal proceedings surrounding the complaints handling by institutions of payment protection insurance;
- the publication of our first Retail Conduct Risk Outlook , illustrating how we will seek to identify emerging market developments that could pose risks to consumers, which will help us to focus resources on those risks; and
- continuing to progress our work on major policy initiatives such as the Retail Distribution and Mortgage Market Reviews.
3. The continued development of a more intensive approach to prudential supervision; as demonstrated by
- strengthening our capital regime by establishing a comprehensive stress-testing framework;
- working closely with firms to require them to embed reverse stress testing into their business models; and
- implementing new European rules on remuneration, and therefore increasing the number of firms covered by the rules from 26 to 2,700.
4. Continued progress in developing new global standards of prudential banking regulation by;
- securing senior representation on all of the three new European Supervisory Authorities in order to play an active role on behalf of the UK in European regulation;
- working, through the Financial Stability Board and the Basel Committee, to develop the new prudential regulatory framework, particularly on capital, liquidity and resolution; and
- working to ensure effective implementation in Europe of the Solvency II directive (for insurance) and the forthcoming CRD IV which will implement Basel III.
The FSA Annual Public Meeting will be held in London on 23 June.
Source: Financial Services Authority
FSA – GENERAL INSURANCE NEWSLETTER PUBLISHED
FSA has published the fifth edition of the General Insurance Newsletter. Following an editorial by Julian Adams, Director, Insurance Division, the newsletter goes on to address the following topics:
- Solicitors’ Professional Indemnity Insurance – allegations of discrimination
- Solvency II – FSA current thinking
- Gender Directive – current considerations
- Consumer Alert – Asset Income Plan Limited
- Tracing employers’ liability insurers
- Letter to aggregators (see above article)
- An overhaul of consumer insurance law
- Insurance Mediation Directive
- FSA priorities and budget for the year ahead
- Prudential Risk Outlook – the economic context to FSA regulation
- Retail Conduct Risk Outlook – key to our new consumer strategy and
- Speeches
Source: Financial Services Authority
Similar in content to the General Insurance Newsletter referred to above, two additional topics are:
- Improving protection for with-profits policy holders and
- Assessing suitability – make sure your firm is doing the right thing.
Source: Financial Services Authority
The FSA has published its latest quarterly consultation paper. The paper will be relevant to firms and individuals with an interest in:
- the Senior Management Arrangements, Systems and Controls sourcebook (SYSC);
- the list of appropriate qualifications for individual advisers and the list for accredited body status;
- liquidity reporting requirements, the simplified Individual Liquidity Standards for BIPRU firms and the transitional arrangements for former Mismatch firms;
- financial promotions;
- adviser charges;
- corporate trustees of occupational pension schemes;
- property investment clubs and land investment schemes; and
- firms that submit written reports to the FSA.
FSA is proposing to:
- add a new rule to the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) to clarify that common platform firms conducting investment services and activities from a branch in another EEA State are subject to the host state’s requirements under Article 13(2) of the Markets in Financial Instruments Directive (MiFID) (Chapter 2);
- extend the list of appropriate qualifications for individual advisers and add bodies to the list for accredited body status (Chapter 3);
- make minor amendments to liquidity reporting requirements, correct and amend the simplified Individual Liquidity Standards for BIPRU firms and extend the transitional arrangements for former Mismatch firms (Chapter 4);
- provide guidance on certain descriptions firms should use to promote financial products (Chapter 5);
- clarify how consumers may be able to cancel ongoing adviser charges for services relating to a financial product without being required to withdraw his or her investments (Chapter 6);
- enable certain corporate trustees of occupational pension schemes to make claims to the Financial Services Compensation Scheme in relation to life insurance policies (Chapter 7);
- clarify guidance in relation to property investment clubs and land investment schemes (Chapter 8); and
- to simplify the way firms submit written reports to the FSA (Chapter 9).
Source: Financial Services Authority
Alexander Justham, Director of Markets, FSA has made a speech at the International Derivatives Expo, London. Covering central clearing, trade repositories, trading regimes and commodities, the speech concluded by Mr Justham stating
“I welcome the progress that has already been made in increasing the volumes of cleared trades and establishing trade repositories across several asset classes, as well as the improved operational standards that have been achieved.
“However, we must be under no illusions about the scale of the tasks ahead. There are many unresolved issues for the new regulatory regime for derivatives, so I would urge firms to engage actively, both with us and with ESMA, to ensure that the regime delivered is fit for purpose.
I would also impress upon you the importance of preparing thoroughly for the changes which will come about as a result of EMIR and the MiFID review here in Europe, the changes occurring through the Dodd-Frank Act in the United States, and other measures in the rest of the world.
“On our side, we are heavily engaged at both the European and the global level in designing the regulatory framework that will apply to OTC derivatives. In doing so, we are committed to delivering on the Pittsburgh agreement in a way that addresses the fundamental issues and ensures appropriate international consistency.
We are also committed to increasing levels of transparency in commodity derivatives, and to developing a suite of tools to ensure the orderly functioning of these essential markets.
We are also committed to increasing levels of transparency in commodity derivatives, and to developing a suite of tools to ensure the orderly functioning of these essential markets.
“Finally I would say that, by working in partnership together, I believe we can create derivatives markets that are safer, more transparent, and more efficient, objectives that I believe are in everyone’s long term interest.”
Source: Financial Services Authority
Commenting on the decision by the FSA to announce a temporary extension for some PPI complaints, the Financial Ombudsman Natalie Ceeney, chief ombudsman, said:
“The FSA has set down a clear timetable for Barclays, Lloyds and RBS to deal with complaints. We trust that the businesses involved will use this time to make sure they have the necessary resources in place, to deal fairly and promptly with the complaints they've received.
”Meanwhile we will continue to work with the banks, over the coming weeks, to help them to ensure that their customers' complaints are dealt with appropriately.
”Meanwhile we will continue to work with the banks, over the coming weeks, to help them to ensure that their customers' complaints are dealt with appropriately.
Source: Financial Ombudsman Service
