Industry News Flash: Compliance News - 3 June 2011
INDUSTRY NEWS FLASH WEEK ENDED 3 JUNE 2011
The FSA has produced Newsletter No 2 relating to the RDR. In the editorial Peter Smith, Head of Investments Policy at FSA, said
“We are now 18 months away from the RDR deadline and all firms should be assessing their business models and making the necessary changes. There may be a number of considerations that a firm will need to address when making the transition, for example, consider the impact on your back-office system, your clients, your advisers and your financial promotions.
In relation to business model change, we have previously highlightedsome key risks where firms may attempt to take advantage of the next 18 months. This could result in unsuitable products being recommended to consumers, including those bearing excessive costs, and unnecessary churn in the retail investment market. They include:
- providers may seek to use the period before the RDR is implemented to acquire market share by offering large commission to advisers;
- before leaving the industry, firms may look to build up their book of commission-based products to make their business more attractive to potential buyers before 31 December 2012; and
- there is a risk that some firms may increase the amount of trail commission on their books, as a way of cushioning the removal of commission on new business carried out post-2012.
We will be increasing our supervisory scrutiny in this area and we will continue to intervene where we believe there will be poor outcomes for consumers. We will continue to monitor these risks, and others we identify, in the run up to the end of 2012.”
The newsletter goes on to feature hot topics called “What’s the latest”, Myth Busters which is a simple Q&A section, reminders of key points and the RDR timetable which is set out below for ease of reference:
End 2012:
- advisers must attain an appropriate qualification. (key a or b in the qualification list – TC Appendix 4E).
- advisers who need to undertake gap-fill need to do so in sufficient time. They will need to leave enough time to apply to an accredited body to validate their gap-fill and issue a statement of professional standing (SPS).
From January 2013:
- all advisers and product providers must prepare and be ready to operate adviser charging and consultancy charging
- all advisers must describe their services as either giving independent advice or restricted advice.
Source: Financial Services Authority
The Financial Services Authority has censured as sponsor for failings while acting during a takeover. This is the first public censure of a sponsor, by the FSA, in relation to the Listing Rules.
In May 2009 the sponsor was approached by the client to provide advice on its proposed merger. The sponsor was made aware that the transaction might constitute a reverse takeover due to the significant size of the target company. The client’s shares were listed on the Official List and traded on the London Stock Exchange.
The Listing Rules state that a suspension of the listed company’s shares will often be appropriate upon the announcement of a reverse takeover, unless the UK Listing Authority (UKLA) is satisfied that there is sufficient information already in the market about the proposed transaction. These requirements are in place to ensure the smooth operation of the market and in the interests of investor protection and market confidence.
The UKLA relies on sponsors to ensure that issuers meet their obligations under the Listing Rules and it is therefore crucial that sponsors deal with the FSA in an open and co-operative manner, and perform sponsor services with due care and skill.
Despite these requirements, the sponsor failed to liaise with the UKLA in advance of the announcement of the transaction to ascertain whether their client’s shares should be suspended. Instead the sponsor:
- Agreed with their client from the outset that it would delay contacting the UKLA until after the announcement; and
- Attempted to avoid classifying the transaction as a reverse, despite recognising at the time that this strategy was highly unlikely to succeed.
The FSA has concluded that the sponsor’s conduct did not satisfy the requirements for a sponsor under the Listing Rules.
Source: Financial Services Authority
The Council of Mortgage Lenders have published their regular newsletter. The current version explains their updated forecasts for mortgage and housing markets in 2011 and for the first time since the market downturn, the CML has also published forecasts extending beyond the end of the current calendar year. They also look at the proposals for a European directive on lending and borrowing and comment on the government's mortgage rescue initiative.
Source: Council of Mortgage Lenders
The Financial Servies Ombudsman has published new guidance on legal expenses insurance. This is essential reading for anyone involved in complaints handling of this product and, arguably, product designers.
As is typical in their guidance sections, the website describes how the FOS approach complaints involving legal expenses insurance. The FOS comment that this is a complex area combining legal and insurance issues, thus it is often necessary for the language used in this section of their web-site to reflect these complexities.
As is typical in their guidance sections, the website describes how the FOS approach complaints involving legal expenses insurance. The FOS comment that this is a complex area combining legal and insurance issues, thus it is often necessary for the language used in this section of their web-site to reflect these complexities.
The guidance states that legal expenses insurance is purchased to fund the costs of legal advice and/or the costs of bringing or defending a court case. Legal expenses insurance can be bought:
- “before the event” – in case a future legal action has to be fought or defended; or
- “after the event” – where the policyholder has alreadydecided to take or defend a legal action and wants to insure against the risk of losing and having to pay the other side’s costs.
The FOS points out that legal expenses insurance is not designed to pay the policyholder the actual damages that they are trying to recover through the court action. Nor does it cover someone’s liability to pay damages to others, as there is separate insurance for that.
Typical legal expenses complaints usually seen involve disputes about one or more of three issues:
- whether the proposed action has reasonable prospects of success;
- the choice of solicitors;
- allegations of maladministration in relation to the policy and/or the claim.
Source: Financial Ombudsman Service
