FCA director speaks on culture and conduct

Jonathan Davidson, Director of Supervision – Retail and Authorisations at the Financial Conduct Authority (FCA), made some pertinent comments about culture and conduct within financial services firms in a recent speech to the City and Financial Summit.

Mr Davidson began by saying he wanted “to talk about culture and conduct in financial services through the lens of the Senior Managers and Certification Regime or, as I like to call it, the Accountability Regime.”

By referring to it as the Accountability Regime, the FCA director is highlighting how the regulator will seek to hold senior individuals responsible when their firms act inappropriately. He added that “the Accountability Regime is directly targeted at the culture of firms”, and that culture was linked to “the strategy and business models of firms.”

Mr Davidson added “that business models often create commercial incentives for behaviours that lead to poor outcomes for consumers.” As an example, he said that the FCA had “found repeatedly in several sub-sectors of consumer credit that firms were making profits on the back of irresponsible lending to consumers who could not afford to repay the debt.”

He went onto say there are four ways that a firm’s culture can be measured:

• Whether the firm has “a clearly communicated sense of purpose and approach”
• The ‘tone from the top’ – what example are senior management setting for their staff when it comes to conduct?
• The governance processes firms have in place to manage conduct risk
• The incentive schemes used by firms – are staff for example rewarded via bonuses and commission structures to act contrary to customers’ interests?

Whilst much of his speech focussed on the responsibilities of senior managers, Mr Davidson highlighted that the Regime sets out five Conduct Rules that will apply to all staff at all FCA authorised firms. These high-level rules will require individuals to:

• act with integrity
• act with due care, skill and diligence
• be open and cooperative with regulators
• pay due regard to customer interests and treat them fairly
• observe proper standards of market conduct

Returning to the responsibilities of senior managers, Mr Davidson spoke of the need for “clear lines of accountability between a decision made and the senior manager who made it or oversaw it.” He reminded his audience that a requirement of the Regime will be for every senior manager to have a Statement of Responsibility that sets out what they are responsible and accountable for. A copy of this statement must be provided to the FCA whenever a senior manager applies to be approved, or whenever a major change to their responsibilities occurs.

His closing remarks addressed the advantages of the new Regime for authorised firms, as well as highlighting how every firm will be required to adopt the Regime. Mr Davidson commented:

“I hope that the accountability regime will be a good thing for firms as well as customers and markets.

“It is the antidote to decision-making by default, fostering clear accountability and thinking. I am hopeful. Firms who have already applied this regime tell me they are already feeling its positive effects.

“By extending the regime, we are also extending this new approach, this new mindset, across the whole industry.

“And I hope that, whether you’re a credit broker in Carlisle or an international investment manager in Canary Wharf, you will agree that having the right culture is just good business.”

The Senior Managers & Certification Regime, or the Accountability Regime, will apply to all authorised firms from March 2018.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


FCA to increase its focus on anti-money laundering

In its September 2017 regulation round-up, the Financial Conduct Authority (FCA) warns all authorised firms that it is increasing its focus on anti-money laundering issues.

The regulator says in the bulletin that it is carrying out “a new programme which involves annually reviewing the AML and sanctions systems and controls of approximately 100 largely randomly selected firms.”

Some firms are rightly considered to be much lower risk than others when the likelihood of the firm being used to facilitate financial crime is considered. Mortgage, credit and insurance brokers are examples of firms who might be considered lower risk, but they are still required to have appropriate systems and controls to prevent the firm being used for financial crime.

The FCA acknowledges however that the 100 firms it selects will be “from those sectors we supervise that we consider present lower inherent money laundering risk.”

It adds that “the purpose of the programme is to help raise standards, provide us with a better picture of the risks posed by different sectors and give us assurance that our risk assessment is correct.”

Although some firms are classed as low risk by the FCA, no authorised firm can neglect the issue of anti-money laundering.

Everyone who works within financial services needs to understand this topic. All staff must receive training on how to identify suspicious activity and on the procedure to be followed for reporting suspicions. This training should be repeated as often as necessary, such as every 12 months. Records of the training should be retained in a personnel file or similar.

Issues firms and their employees need to understand include:

• What money laundering is
• The key pieces of anti-money laundering legislation
• The stages of the laundering process
• The importance of verifying the identity of all clients
• The importance of ensuring clients are not subject to restrictions under the Financial Sanctions regime
• What might be regarded as suspicious activity
• What staff should do when identifying suspicious activity
• What the possible punishments are for money laundering offences

With the exception of sole traders, all firms are required to appoint a Money Laundering Reporting Officer (MLRO), who should consider whether to inform the National Crime Agency about any suspicious activity that occurs within the firm. The MLRO should be a senior individual who is competent to judge if an activity is suspicious, and must be someone from within the firm, so for example firms cannot nominate an external compliance consultant as the MLRO.
The FSA and FCA have fined companies in the past for failing to have adequate systems & controls in the area of money laundering prevention. These fines have often been imposed even where there is no actual evidence of suspicious transactions having taken place.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


Survey finds firms not prepared for GDPR

Only one third of advisory firms have made plans for the introduction of the General Data Protection Regulation (GDPR), according to a new survey.

The data protection watchdog, the Information Commissioner’s Office, has described the new Regulation as “the biggest change to data protection law for a generation”.

Nevertheless, a study by financial software provider Intelliflo found that of the 270 firms surveyed, 67% had no plan for implementing GDPR. 31% had little understanding of how the GDPR requirements are different from existing data protection legislation, and 9% of respondents were unaware that the Regulation even existed.

The GDPR comes into force on May 25 2018 and will affect all firms across all business sectors. Although the Regulation is a piece of EU legislation, Brexit will not affect its implementation in the UK.

Rob Walton, chief operating officer of Intelliflo, said:

“Although May might seem like a long way off, it’s actually very little time for advisers to start preparing for the enforcement date of GDPR.

“It’s not the case that if you are compliant with the current Data Protection Act, then there’s little to worry about.

“The new regulation is far more detailed, with new obligations and requirements and it’s essential that advisers can demonstrate that they have taken action to ensure they are fully meeting these.

“Personal data is the very essence of financial advice therefore GDPR could have a significant impact on most, if not all, firms.

“Our survey throws up some worrying results and I urge advisers to act now to get a firm grasp on what it means for them and their businesses.”

Some of the key elements of GDPR include:

• Privacy notices must clearly explain to clients what a firm’s legal basis for processing data is, together with how long the firm will retain the data for. Clients must also be informed that they have a right to complain to the ICO. 89% of respondents to the Intelliflo survey admitted that they still retained data that related to clients whom they had not dealt with for a number of years
• Firms will have just one a month to comply with a subject access request, and in most circumstances won’t be able to charge clients for providing the information
• Where firms introduce new technology, or where processing is likely to significantly affect individuals, they may be required to carry out a Privacy Impact Assessment, considering the impact the change would have on the data protection rights of clients

Firms that fail to comply with GDPR requirements can be fined up to 4% of annual turnover or €20 million, whichever is higher. Firms are therefore urged to read the information on the ICO website about the detailed GDPR requirements, and to seek advice from their compliance consultant.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


CMC is fined by ICO after making record number of nuisance calls

Carmarthenshire-based Your Money Rights Ltd has been fined £350,000 by the Information Commissioner’s Office (ICO). The data protection watchdog said that the claims management company had made “a record high 146 million illegal calls about PPI.” The calls were made over a four-month period.

The company failed to ensure that the recipients had consented in advance to receiving these automated phone calls, and failed to state their name and contact details in the recorded message. Sometimes calls were made more than once to the same number on the same day. The ICO adds that some consumers felt “harassed and threatened” by the calls.

Steve Eckersley, ICO Head of Enforcement, said:

“We’re cracking down on illegal automated calls on behalf of the British public. They are a blight on society that disregards people’s right to have their wish for peace and quiet in their own home respected.

“We know people find calls playing recorded messages particularly intrusive because they are unable to speak to a call agent. Your Money Rights should have known that the law around automated calls is stricter than for other marketing calls.”

Like many firms who have been subject to ICO action over similar issues, Your Money Rights has now commenced liquidation proceedings. The ICO says in its press release that it “is committed to recovering the fine and will work with insolvency practitioners and the liquidator.”

However, Mr Eckersley appeared to acknowledge that recovering the fine may not be easy, and looked forward to the forthcoming change in the law that will allow his organisation to impose fines on individual company directors.

Mr Eckersley added:

“A change in law to make directors personally liable for illegal marketing calls can’t come soon enough.

“If a firm goes out of business to try and duck an ICO fine then they’re no longer making troublesome nuisance calls. But the new law will increase the tools we have to go after them and hold them fully accountable for the harassment, annoyance and disruption they’ve caused.”

Your Money Rights had already been stripped of its authorisation to carry out claims management services by the Claims Management Regulator. In its enforcement notice of May 2017, the Regulator said that the company was guilty of a number of breaches of its rules, including some that did not relate to its marketing practices. For example, the company was said to have failed to co-operate with the regulator’s efforts to carry out supervision and monitoring of its activities, and also to have failed to ensure its communications with clients were ‘clear, transparent, fair and not misleading’.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


FCA writes to all consumer credit CEOs after finding basic issues with firms’ complaints processes

The Financial Conduct Authority (FCA) has chosen to write to all CEOs, or equivalent, of the 50,000 or so consumer credit firms in the UK. The regulator’s recent supervision activities, which included a thematic review into how credit firms deal with customer complaints, have revealed some basic flaws in firms’ processes and practices.

In the letter, the FCA states how it believes that the way a firm responds to complaints can indicate whether, in a wider sense, fair treatment of customers is central to the corporate culture.

The letter reads:

“Firms’ attitudes to complaints are a strong indicator of their culture and whether they have customers at the heart of their business. Those firms that care about their customers and want to do better recognise that complaints are an opportunity to identify and rectify failings and strengthen relationships with their customers. Conversely, those firms that consider complaints as a nuisance and do not take them sufficiently seriously are unlikely to have a culture that leads to positive customer outcomes.”

Some of the issues highlighted by the FCA in the letter include:

• Almost half of firms had websites that did not make customers aware of their right to refer complaints to the Financial Ombudsman Service (FOS).
• Around a quarter of firms either had no information on their websites about how to make a complaint, or else the complaints information on their sites was difficult to locate. Other firms did publish their complaints procedures on their website, but in many cases the FCA says these procedures lacked basic information, such as when complaints would be acknowledged or final response letters issued.
• Almost one-fifth of firms were found to still be operating ‘two-stage’ complaints processes. This type of arrangement usually involves complaints being escalated internally if the customer indicates they are dissatisfied with the firm’s initial attempt to address the complaint. The FCA’s rules now specifically prohibit this type of two-stage process, as it has been found to deter customers from pursuing complaints against firms
• There were a number of issues regarding the quality of final response letters, including:
o Failing to explain how the complaint had been assessed and investigated
o Not clearly explaining whether the complaint had been upheld or rejected
o Neglecting to explain why a complaint had been rejected
o Failing to mention the time limits that apply when customers wish to refer complaints to the FOS
o Not stating that the service provided by the FOS is free of charge, or not providing the website address of the FOS in the final response, or not enclosing a copy of the FOS leaflet
• Many firms were not carrying out root cause analysis on complaints received, with a view to reducing the likelihood of similar complaints in the future. When a complaint is received, firms should consider, for example, whether it may be necessary to change business practices or procedures, or provide extra training to one or more employees
• Many firms are still not providing accurate complaints data returns. Specifically, the FCA reminds firms that they are now required to record and report all complaints, including those that are resolved within three business days of receipt

All firms with credit permissions are now expected to take careful note of the contents of the letter, and to consider whether any changes to complaints procedures and practices are required in their firms.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


Insurers’ study finds clients of financial advisers are significantly better off

A study by insurance company Royal London – conducted in partnership with the International Longevity Centre (ILC), a think tank on demographic change issues – has suggested that consumers may be around £40,000 better off if they take professional advice, compared to those who don’t have the benefit of this service.

Amongst consumers classed as ‘affluent’, the average benefits from seeking financial advice were calculated at £43,245. Affluent clients of financial advisers were found to have £12,363 more in liquid financial assets and £30,882 more in pension wealth than the average affluent consumer who didn’t get professional advice. Clients of professional advisers were also 6.7% more likely to save and 9.7% more likely to invest in the equity market.

Similar advantages were found to exist amongst consumers in the ‘just getting by’ economic group. Amongst ‘just getting by’ consumers, those who received advice had, on average, £14,036 more in liquid financial assets and £25,859 more in pension wealth, totaling £39,895 more. Where people in this grouping received advice, they were 9.7% more likely to save and 10.8% more likely to invest in the equity market.

Steve Webb, Director of Policy at Royal London, and who served as Pensions Minister in the 2010-15 coalition government, commented:

“This powerful research shows for the first time the very real return to obtaining expert financial advice. What is most striking is that the proportionate impact is largest for those on more modest incomes. Financial advice need not be the preserve of the better off but can make a real difference to the quality of life in retirement of people on lower incomes as well. The evidence shows that when people take advice they are overwhelmingly satisfied and benefit as a result. More needs therefore to be done to overcome the barriers to advice.”

Ben Franklin, Head of Economics of Ageing, at ILC-UK said:

“Our results show that those who take advice are likely to accumulate more financial and pension wealth, supported by increased saving and investing in equity assets, while those in retirement are likely to have more income, particularly at older ages.

“But the advice market is not working for everyone. A high proportion of people who take out investments and pensions do not use financial advice, while only a minority of the population has seen a financial adviser. Since advice has clear benefits for customers, it is a shame that more people do not use it. The clear challenge facing the industry, regulator and government is therefore to get more people through the “front door” in the first place.”

It is notable that both Mr Webb and Mr Franklin urged the government, and regulators, to do more to improve access to financial advice. The recent Financial Advice Market Review, jointly conducted by the Financial Conduct Authority and HM Treasury, aims to address this very subject.

The findings of the study may come as little surprise to many financial advisers. In contrast to the image of years gone by of an adviser being little more than a salesperson, today’s advisers are expected to maintain long-lasting relationships with their clients, and to continually monitor clients’ investments and financial position.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


Regulator strips authorisation from two more CMCs

In mid-September 2017, the Claims Management Regulator at the Ministry of Justice (MoJ), announced that it had cancelled the authorisation of Huddersfield-based claims management company (CMCs) UK 4 Legal Limited, as well as that of Salford-based CDW Bureau Limited. Both companies handled claims relating to financial services, with UK 4 Legal also taking on personal injury work.

As with many CMCs who have seen their permissions cancelled as a result of compliance breaches, the MoJ found a number of issues with UK 4 Legal’s marketing practices. However, the Regulator also identified concerns with the competence of both senior management and other staff at the company.

Similar issues were identified at CDW Bureau, together with some additional issues over how the company was handling complaints.

Both companies breached the following sections of the MoJ’s Conduct of Authorised Persons Rules 2014:

  • General Rule 2d – the requirement to maintain appropriate records and audit trails
  • General Rule 2e – ensuring that all referrals, leads or data from third parties have been obtained in accordance with the requirements of the legislation and the MoJ’s Rules
  • General Rule 3 – which stipulates that companies must be directed by senior management who are competent and who understand the applicable legislation and rules they must abide by
  • General Rule 4 – which requires staff working for the firm to have the necessary training and competence

UK 4 Legal also breached Client Specific Rule 9, which explains that it is the responsibility of the authorised CMC to ensure that any publicity issued on its behalf by a third party complies with the relevant rules.

CDW Bureau Limited also breached the following sections of the Conduct of Authorised Persons Rules 2014:

  • General Rule 2c – which requires that claims referred to any recognised Ombudsman, or other dispute resolution scheme, must comply with those organisations’ procedures, must be specifically tailored to the individual circumstances of a claim, and must take account of relevant past decisions made by that dispute resolution service
  • General Rule 2f – which asks companies to have procedures in place to identify vulnerable customers, and to ensure that they are appropriately protected
  • General Rule 8 – the requirement to operate a complaints scheme that meets the MoJ’s Rules in this area
  • General Rule 11 – the requirement to comply with the monitoring and enforcement arrangements of the Regulator
  • Client Specific Rule 1 – the generic requirement to act fairly and reasonably in dealings with all clients
  • Client Specific Rule 2- a stipulation that services offered to clients must meet their needs, and satisfy the requirements of the Rules
  • Client Specific Rule 6d – which prevents CMCs from stating or implying that the company has been specifically approved by the government, or is connected with a government agency or regulator
  • Client Specific Rule 19 – the requirement to provide prompt advice to a client about any requirements concerning their claim, such as the need to provide additional information

Finally, CDW Bureau was found to have breached Complaints Handling Rule 18 of the MoJ’s Complaints Handling Rules 2015. This requires CMCs to maintain records of all complaints received, and to make these available to the Regulator on request.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


Advisory firm loses out at FOS over mortgage porting advice

Mortgage advisory firms should take careful note of a recent judgement from the Financial Ombudsman Service (FOS), which highlights just how far their duty of care to their clients goes.

Hampshire-based firm Adviser Business Solutions Ltd (ABS) must now pay a five-figure sum in compensation after neglecting to advise Mr and Mrs P of the procedure to be followed when seeking to ‘port’ their mortgage.

The clients engaged the firm to advise them on an arrangement whereby their mortgage would be transferred to their new property. However, Adviser Business Solutions did not tell them that a refund of the early repayment charge would only be granted if they completed the sale of the previous property within a three-month period. As it was, the transaction was only completed one week after this deadline.

Ombudsman Melanie McDonald rejected the firm’s argument that the clients’ solicitor should have highlighted this issue.
In her judgement, Ms McDonald said:

“Mrs and Mr P say, and I accept, that, had they known about the deadline, there is no reason why they couldn’t have complied with it and brought completion forward by a few days.
“I don’t think it was up to Mrs and Mr P’s solicitor to warn them about the three-month deadline.

“As I have said it was not immediately apparent from the redemption statement and in any event her role was to manage the legal side of the transaction.

“Arranging the mortgage and making sure that the objective Mrs and Mr P had identified at the outset was met was down to ABS.

“Having identified Mrs and Mr P’s single requirement in its letter of 26 April, I think it was reasonable to expect that ABS would take whatever steps were necessary to ensure it was met.”
The firm has therefore been ordered to refund the early repayment charge of £13,362.25 to the clients, plus an allowance for interest of 8% per annum.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


Government announces plans for corporate governance reforms

The Government has announced what it describes as a “world-leading package of corporate governance reforms”, all designed “to increase boardroom accountability and enhance trust in business.”

The most eye-catching requirement will be an obligation for every listed company in the UK to reveal the difference in pay between its average employee and that of the CEO, or equivalent.

In listed companies where one fifth of the investors object to executive annual pay packages, this must be recorded on a public register.

The Government will not be making it compulsory for employees to be represented on their company boards. Instead, companies will be able to designate an existing non-executive director as the representative of the workforce, or companies will be able to comply with their obligation by creating an ‘employee advisory council’.

The Financial Reporting Council (FRC) will work with the business community and the government to develop a voluntary set of corporate governance principles, and large private companies will be invited to sign up to these principles.

Business Secretary Greg Clark MP said:

“One of Britain’s biggest assets in competing in the global economy is our deserved reputation for being a dependable and confident place in which to do business. Our legal system, our framework of company law and our standards of corporate governance have long been admired around the world.

“We have maintained such a reputation by keeping our corporate governance framework under review. Today’s reforms will build on our strong reputation and ensure our largest companies are more transparent and accountable to their employees and shareholders.”

Stephen Martin, Director General of the Institute of Directors, said:

“We welcome the pragmatic approach the government is taking to improve how company boards work. We’re particularly pleased that there will be a code for large private businesses, as the principles of good governance should extend beyond the companies listed on the stock market.

“The Secretary of State is taking a sensible approach on giving workers a bigger say, by allowing companies to choose the best way to implement the new rules. All directors are responsible for the whole company, so any with the specific remit to speak for employees must be adequately trained and aware of their responsibility to promote the long-term success of the business.
“Pay ratios will sharpen the awareness of boards on the issue of remuneration, but they can be a crude measure. Companies will have to prepare themselves to explain how pay as a whole in their business operates, and why executives are worth their packages.”

Noting that the salary data companies will be required to publish will show the difference between executive pay and that of the average worker, rather than that of the lowest paid employee, the Trades Union Congress (TUC) criticised the plans.

TUC general secretary Frances O’Grady said:

“This is a far cry from Theresa May’s promise to crackdown on corporate excess. It’s a feeble proposal, spelling business as usual for boardrooms across Britain.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


FCA commences PPI deadline campaign

The Financial Conduct Authority’s two-year publicity campaign regarding the impending payment protection insurance (PPI) deadline has commenced. The regulator will use “TV, online and … outdoor advertising across the UK over the next two years” to alert people to the fact that they will not be able to submit a PPI complaint after August 29 2019.

Many people will already have seen the television adverts featuring the voice, and an animatronic model, of actor Arnold Schwarzenegger. The adverts currently being shown show shoppers struggling to decide which product to buy, before Arnie’s head appears and urges them to “make a decision”. The advert then highlights that all consumers need to make a decision now as to whether or not they wish to make a PPI complaint.

Andrew Bailey, Chief Executive of the FCA, said:

“Our campaign aims to cut through the noise on PPI. We want to encourage people to decide whether to find out if they had PPI and whether to complain or not. Our message, and Arnie’s, is ‘do it now’ and I urge people to make a decision before the deadline on 29 August 2019.”

The FCA press release announcing the launch of the campaign also highlights that:

  • It is now possible to submit a PPI complaint on the grounds that the firm failed to disclose the existence of a large commission payment that amounted to more than 50% of the premium
  • The cost of the campaign is to be met by the 18 firms who each received more than 100,000 complaints between August 1 2009 and August 1 2015
  • £27.4 million in PPI compensation has already been paid out by financial institutions in the UK
  • The FCA has launched a new PPI consumer helpline, which will be staffed between 8am and 10pm, seven days a week
  • The FCA has been working with firms to ensure that: consumers can submit their complaint online, complaint forms are easy to understand, vulnerable customers will be provided with extra support when making complaints, and consumers can easily check whether they took out PPI
  • The FCA has updated its webpages on PPI, to provide more information on why someone might want to make a PPI complaint, and about how they should do it

PPI is undoubtedly the most mis-sold financial product in history, but the launch of this campaign certainly marks the ‘beginning of the end’ of the PPI saga.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

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