Debt management director banned after using client money to buy the firm

The Financial Conduct Authority (FCA) has given notice of its intention to impose an outright ban on a former debt management firm director, preventing him from carrying out any regulated activity anywhere in the financial services sector.

The sanction was imposed after he illegally used money from clients to purchase the firm of which he was a director. The individual has said he intends to appeal the FCA’s decision to the Upper Tribunal.

He used the sum of £322,500, some or all of which was client money, to purchase the firm from the former owner. By May 2014, the firm’s client money shortfall stood at £7,156,036, and as the sole director, he has been held responsible by the FCA for that shortfall. In its Decision Notice, the FCA contends that he knew that his conduct was wrong, and that the monies in the client account should only have been used for the benefit of the firm’s customers.

The firm in question was never regulated by the FCA, as at the time the FCA became the regulator of consumer credit and debt management in 2014, the firm had already been stripped of its Consumer Credit Licence by former regulator the Office of Fair Trading (OFT). This action was taken after the OFT uncovered evidence of “deceitful, oppressive, improper and unfair business practices.” Issues identified included:

  • Not being sufficiently transparent when describing its services
  • Failing to explain the risks associated with the firm’s rather unusual method of attempting to reduce customer debts
  • Not providing suitable advice

The firm’s licence was finally revoked on July 29 2013, and was permitted to carry on trading, subject to conditions, until October 18 2013. The plan was for customers to have been transferred to another firm from that date, however the transfer never took place. The firm instead continued to receive payments from customers until it was placed into administration in May 2014.

The banned director’s firm used a different method of dealing with customer debts than most debt management firms. The standard approach involves customers making monthly payments to the debt management firm, who then distribute the payment amongst the individual’s creditors. Instead, this firm sought to challenge the enforceability of debt agreements, or to set off mis-selling claims against certain debts, or to negotiate an overall settlement of the debts. In order to make an offer for “full and final settlement”, the firm built up a pot of money for each customer, and it is these pots that the director is said to have mis-appropriated.

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 and PRA act to fine bank chief over whistleblowing disclosure

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have taken joint action to impose a fine of £642,430 on the chief executive of a high street banking group, after he acted inappropriately in attempting to uncover the identity of a whistleblower.

The case is described by the regulators as “the first case brought by the FCA and PRA under the Senior Managers Regime.”

The saga began when a member of the bank’s Board received an anonymous letter from someone claiming to be a shareholder, who expressed concerns over the process used to recruit a particular employee. Three days later, a second letter was received, which expressed similar concerns, but here the sender claimed to be an employee of the bank. Despite warnings from his internal compliance function, the chief executive continued his efforts to uncover the identity of the sender of the first letter, believing that as the author was not claiming to be an employee, it was not covered by the whistleblowing procedures.

It should be noted however that, whilst the FCA believes he breached his duty to act with due skill, care and diligence, it did not conclude that his actions raised concerns over his integrity.

As part of its enforcement action, the FCA and PRA also acted to force the bank comply with a series of special measures regarding its whistleblowing systems and controls. Until 2020, it must report annually to the FCA and PRA regarding any whistleblowing cases that concern its Senior Managers and/or where attempts were made to identify any anonymous whistleblowers. The bank’s dedicated Whistleblowers’ Champions will be required to provide personal attestations as to the soundness of the firm’s whistleblowing systems and controls.

Mark Steward, FCA Executive Director of Enforcement and Market Oversight, said:

“Given the crucial role of the Chief Executive, the standard of due skill, care and diligence is more demanding than for other employees.

“[NAME] breached the standard of care required and expected of a Chief Executive in a way that risked undermining confidence in [NAME OF FIRM]’s whistleblowing procedures. Chief Executives must act with a high degree of care and prudence at all times. Whistleblowers play a vital role in exposing poor practice and misconduct in the financial services sector. It is critical that individuals are able to speak up anonymously and without fear of retaliation if they want to raise concerns.”

Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of the PRA, said:

“Protection for whistleblowers is an essential part of keeping the financial system safe and sound. [NAME]’S behaviour fell below the standard we require, resulting in today’s fine and public censure. In addition, [NAME OF FIRM] is now subject to special requirements to report to the PRA and FCA how it handles its whistleblowing cases in the coming years.”

Although this case relates to one specific high street bank, managers of all authorised firms should ensure that they are aware of their obligations regarding whistleblowing. All firms should have written whistleblowing procedures in place, which provide a method by which employees can confidentially raise concerns about the firm’s practices. Disciplinary action can only be taken against a whistleblower if it can be demonstrated that they acted maliciously in raising the issue.

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 chief speaks about his organisation’s objectives

Financial Conduct Authority (FCA) chief executive Andrew Bailey used much of his recent speech to the British Insurance Brokers’ Association Conference to summarise the content of his organisation’s Business Plan for the 2018/19 financial year.

The Plan comprises two main components: planning for the UK’s impending exit from the European Union, and the seven main cross-sector priority areas on which FCA will focus much of its supervision activity over the next year. These ‘priorities’ are:

  • Firms’ culture and governance, and whether these are likely to produce outcomes that will benefit consumers and markets, with particular emphasis on the way firms reward and incentivise their staff
  • Continued supervision of the high-cost credit sector
  • Continuing the fight against financial crime, including fraud, scams and money laundering, with the central aim of protecting consumers
  • Data security and related issues, examining the risks of firms falling victim to a cyberattack, or experiencing a major IT systems failure, or otherwise losing a large quantity of data
  • Innovation and competition, and how these are delivering change in the financial sector, and whether consumers are experiencing harm as a result of these changes
  • Whether firms are treating existing customers fairly, ensuring they don’t end up worse off than new customers
  • Inter-generational issues, such as those concerning long-term savings and pensions, noting that the demographics of UK population are changing, and that different generations have differing financial needs. Here, the FCA is particularly concerned about the number of firms giving unsuitable pension transfer advice

Rather than passing any judgement on the merits or otherwise of Brexit, Mr Bailey said the FCA’s job was “to roll our sleeves up and get on with the task of effective implementation.” He welcomed the fact that there is likely to be a transition period following the UK’s official exit from the EU in March 2019, owing to the risks surrounding any ‘cliff-edge’ scenario, whereby the UK is a full member of the EU on one day, but the next day is outside the Union without effective structures for adjusting to its new status.

Specifically, he spoke of the prospect of “a sudden and disorderly falling away of the passporting system.” Passporting allows firms authorised with the national financial regulator in one European Economic Area (EEA) member state to do business in all other member states, without requiring specific authorisation from other national regulators. Passporting may continue during any transition period, but politicians from both the UK and the EU have ruled out any prospect of the passporting system continuing in the longer term.

Regarding each of the seven cross-sector priorities, Mr Bailey’s remarks included:

On the subject of firms’ culture and governance:

“We will continue to support and engage with firms to ensure their purpose, leadership, governance arrangements and approach to rewarding staff do not lead to harm to customers. Key work in this area includes finalising the rules for the extension of the Senior Managers and Certification Regime to all Financial Services and Markets Act 2000 (FSMA) firms.”

On the subject of high-cost credit:

“We have already taken action to protect potentially vulnerable consumers by putting in place new rules for high-cost short-term credit firms, as well as taking supervisory and enforcement action against credit firms who don’t meet our standards. This year we will consolidate this work by looking at alternatives to high-cost credit, focusing on solutions designed to increase choice and availability and barriers which may stymie these efforts.”

On the subject of data security, resilience and outsourcing:

“Our work here focuses on ensuring that firms are more resilient to cyber-attacks and technology outages. One area we are focusing on is outsourcing arrangements, where the service provider supports many firms and so the impact of any disruption is magnified.”

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


GDPR: introducing a new era in data security

By 2020, the amount of data gathered will have reached 40 zettabytes (ZB). The General Data Protection Regulation (‘GDPR’) was created to unite principals of data privacy within Europe. Under the GDPR, the crucial requirement is that firm’s cannot store data for longer than necessary for the purposes for which it is being processed, unless this is for archiving purposes in the public interest (i.e. NHS, criminal records) or for scientific or historical research purposes.

The regulation contains not only rights but also duties…

In the event of breach, firms must notify the Information Commissioners Office (‘ICO’) authority within 72 hours. But this is not the only authority that has to be notified. All concerned persons also have to be informed. This may be done by a public communication.

Grey area

Although, The Financial Conduct Authority (FCA) is not responsible for GDPR, the FCA has been including questions on GDPR preparation in conversations with the firms it regulates.

Regarding firms who provided their services on an-advised basis, it is arguable for these firms to hold client data for as long as possible.

As such, there is some inconsistency among firms as to how to interpret GDPR expectations.

Lee Simmons, group compliance manager at national advice firm LEBC, stated, ‘Our policy will be to retain certain files indefinitely, such as defined benefit transfers, as this is mandated by FCA record keeping rules.

LEBC intends to incorporate these procedures in other high-risk areas, such as investments to retail clients. ‘A claim can be brought before the Financial Ombudsman Service (FOS) within three years of the complainant becoming aware they had cause to complain,’ Simmons said.

In relation to other business activities, Simmons explained, LEBC will maintain the file ‘for claim purposes’ for six years after the end of the relationship.’

Simmons added ‘In all cases, after three years all files will be put into “deep” archiving. These will only be accessible by a limited number of individuals in a limited number of circumstances.’

Openwork stated its retention policy also depended on the type of product. A spokesman said: ‘For term products and investments, we retain data for seven years after the end of the contract. Some pension contracts require data to be kept indefinitely.’

An Old Mutual Wealth Private Client Advisers (OMWPCA) spokesman said, depending on the product type, outside the FCA’s regulatory requirements, the firm could keep client data for up to 50 years following contract termination.

Lawful basis

The FCA’s COBS 9.5 rules states firms to retain records relating to suitability indefinitely for pension transfers, pension conversions, opt-outs and free-standing additional voluntary contribution. If the advice relates to a life policy, personal pension scheme or stakeholder pension scheme, data must be retained for five years. Noting, for any other business, the regulatory minimum is three years.

However, if intending to retain data beyond that, firms need to provide a lawful basis.


Simmons said LEBC ‘will not comply with such a request where to do so would violate any FCA record-keeping requirement’. He added: ‘However, unless LEBC has reasonable grounds to refuse to erase personal data, requests shall be complied with, and the data subject informed, within one month of receipt of the request.’

Old Mutual’s approach is more defensive: ‘Under Article 17 of the GDPR, we will assess any requests for erasure and carry them out where there is a valid basis to do so.  Explicitly we will decline any requests where we have a lawful basis for retaining records.’

Linking ICO and FCA?

In terms of data retention, there may be some flexibility between the ICO and the FCA to allow firms who can demonstrate they have made substantial efforts to adapt to the new rules.

However, records can be crucial in deciding whether advice given was suitable or not. Erasing files under GDPR requirements, could results in complications for many firms. On the other hand, clients may not be satisfied with firms retaining their data for regulatory purposes.

One possible solution would be for the ICO and the FCA to establish joint guidance on the issues surrounding data retention and complaints.


MOJ issues interim fee cap guidance to CMCs

The Financial Guidance and Claims Act 2018, which will fundamentally change the way claims management companies (CMCs) need to operate, became law earlier in May 2018.

This Act provides for the transfer of claims management regulation from the Ministry of Justice (MoJ) to the Financial Conduct Authority (FCA), with the switch expected to occur in spring 2019.

In the longer term, the FCA will have the power to set and vary the fees that CMCs can charge. However, in view of the fact that the FCA will not commence regulating CMCs for 12 months or so, the provisions of the Act also include an interim fee cap, which comes into force on July 10 2018 – two months after the date the Act became law.

The MoJ has now published a guidance note setting out the restrictions that will apply to claims management fees from July 10.

The new restrictions on the fees that can be charged by CMCs include:

  • Companies cannot ask clients to pay upfront fees for payment protection insurance (PPI) claims
  • No fees can be requested at any stage if a PPI claim is unsuccessful
  • A cap of 20%, excluding VAT, will apply to all other PPI claims
  • All cancellation charges must be reasonable, and an itemised bill setting out details of what the cancellation charges relate to must also be provided

The 20% cap will also apply to companies that charge an hourly rate for their services. The new law does not expressly prohibit the use of hourly charging methods, provided that the cap is used as an over-riding limit on the total amount that can be charged.

All CMCs therefore need to take steps to make sure they will be able to comply with the introduction of these new fee caps in just two months’ time – one obvious first step to take here is to amend the terms of the contracts that clients are asked to enter into.

In particular, the MoJ highlights a possible scenario whereby a potential client makes contact with a CMC prior to July 10, and is issued with a contract, but is not ready to sign it until after July 10. In these circumstances, the requirements are unambigious – all contracts signed after July 10 must comply with the new fee cap, regardless of when they were drawn up. If necessary, the CMC will need to send the client an amended contract that is compliant with the new requirements. Any contract signed after the implementation date that does not comply with the fee cap will be unenforceable.

All new and potential clients of CMCs need to be made aware of the forthcoming changes to the rules on fee charging.

The MoJ adds that any attempt by a CMC to pressurise a client into signing a contract before the implementation date will constitute a breach of Client Specific Rule 3, which relates to high pressure selling.

The MoJ will continue to regulate CMCs up until the official handover date next year, and can take enforcement action against companies that fail to observe the fee cap.

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


ICO sets out its new enforcement powers

As the regulatory environment gets ever more stringent, companies need to be aware that simply demonstrating compliance with the requirements of their industry regulator, such as the Financial Conduct Authority or the Claims Management Regulator, is not in itself sufficient. Companies across all business sectors also need to comply with applicable data protection legislation and can expect to be subject to enforcement action if they break the law.

The powers available to the data protection regulator, the Information Commissioner’s Office (ICO), are summarised in a recent blog post by James Dipple-Johnstone, Deputy Commissioner for Operations at the ICO.

Most companies are aware that the introduction of new General Data Protection Regulation (GDPR) is just days away, however Mr Dipple-Johnstone said that it had also been “an incredibly busy time” for the ICO because of its well-publicised investigation into the use of data for political purposes, which he described as “the largest investigation in our office’s history.”

He made reference to the fact that the maximum fines under GDPR will be the higher of 4% of global turnover or €20 million (approximately £17 million). However, he added that:

“Over the last few months, it has become increasing clear that some of our powers are not fit for purpose for the challenging remit we have in the digital age. We have also realised that the powers under the GDPR, although enhanced, are not going to be sufficient either.”

To clarify his remarks, Mr Dipple-Johnstone explained that whilst the GDPR is a piece of European Union legislation, data protection laws enacted in the UK give his organisation the power to:

  • Prosecute organisations that fail to provide requested information
  • Go to court to obtain a warrant to search premises, allowing the ICO to carry out inspections without notice
  • Issue information notices to individuals as well as organisations
  • Require urgent information notices to be complied with within 24 hours

He added that future legislation will make it a criminal offence for an organisation to destroy or alter information that the ICO wishes to remove under a search warrant.

The ICO has issued a draft Regulatory Action Plan and invites comments on its content before June 28. One of the aims of the Plan is to ensure that the ICO takes “fair, proportionate and timely regulatory action with a view to guaranteeing that individuals’ information rights are properly protected.”

In deciding whether to take action, and in carrying out enforcement actions, the ICO’s principal objectives will be:

  • To respond to breaches of legislation, especially those involving highly sensitive information, or which affect large numbers of people, or have an impact on vulnerable individuals
  • To use its most significant powers against organisations and individuals suspected of repeated or wilful misconduct or serious failures to take steps to protect data
  • To support compliance in general, including the promotion of good practice and provision of advice on compliance issues
  • To identify and mitigate emerging risks associated with data protection, such as changes related to technological change
  • To work constructively with other regulators and interested parties

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


Adviser trade body looks at differing financial needs of millennials

The Personal Investment Management and Financial Advice Association (PIMFA), a trade association that represents financial advisers and wealth managers, is conducting a major study, known as the Millennial Forum, looking at how it might engage with future generations.

The Association cites research by accountancy firm Deloitte which suggests that millennials – usually defined as those born between 1982 and 2004 – will make up 75% of the global workforce by 2025. It therefore recognises the need to address the concerns of this generation, and notes that, in light of the 2007 financial crisis, the financial services industry is still viewed negatively by many young people.

A final report will be issued in November 2018, but PIMFA has already issued a preliminary Millennial Report. The Executive Summary of this Report states:

“It is a very different world for millennials, and we must not underestimate the impact this will have on them as clients and on the industry. This generation has more financial hurdles such as high property prices and less lucrative retirement benefits, but given the means through inheritance, and/or their own earnings, many would be willing to use a wealth manager.”

PIMFA believes that the challenges posed to the advice and wealth management profession by the millennial generation include:

  • Property prices are often prohibitive, preventing young people from getting onto the housing ladder
  • The idea of a ‘job for life’ is now unrealistic for many people, and large numbers of younger people can expect several career changes during their working life
  • Pensions are no longer guaranteed at pre-determined levels
  • Firms may need to look at revising their fee structure and/or their minimum investment levels to accommodate the needs of millennials

Although many millennials are undoubtedly very tech-savvy indeed, PIMFA says its initial research indicates that this generation still highly values face-to-face advice. With concerns over data protection and firms’ handling of personal data attracting considerable publicity, the Association adds that many millennials are comfortable with the idea of firms processing and sharing their data, provided “it can be proven to be secure and produce tangible benefit.”

The Report also suggests that more needs to be done to recruit younger people to work as advisers and wealth managers, indicating that younger people are more likely to engage with someone whom they believe better understands their concerns and financial goals.

Findings from PIMFA’s survey of millennials include:

  • 67% say that the wealth management sector is either of no relevance (34%) or of little relevance (33%)
  • 49% had negative perceptions of wealth managers
  • The average millennial was allocating 25% of their income to a mortgage and 20% to regular saving, leaving only 11% for investment and 10% for retirement savings
  • 28% would be likely to approach a smaller advice firm if they needed financial advice, while only 16% would approach a larger firm. However, 30% would approach family or friends as their first port of call

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 has conditions of authorisation varied after a series of rule breaches

A payment protection insurance claims company based in Camarthen has had the conditions of its authorisation varied. This follows an investigation by the Claims Management Regulator at the Ministry of Justice (MoJ) which found the company to be in breach of four separate sections of the Conduct of Authorised Persons Rules 2014.

As a result of its previous failings, the company must now not only comply with all the usual MoJ rules but must also observe an additional condition imposed by the Regulator. It must now wait at least 24 hours from when it provides pre-contract information (such as terms and conditions) to a client before entering into a legally binding contract with that person.

The Rules which the company failed to comply with were:

  • General Rule 2a –the requirement to take all reasonable steps to ensure that there are legitimate grounds for making a claim before that claim is presented it to a third party
  • General Rule 2e – the obligation to confirm that any referrals, leads or data have been obtained in accordance with the requirements of the MoJ’s Rules and applicable legislation
  • Client Specific Rule 1 – the need to ensure that all information given to a client is ‘clear, transparent, fair and not misleading’
  • Client Specific Rule 9 – the requirement for the authorised claims management company to verify that marketing materials issued on its behalf by third parties comply with the relevant MoJ Rules and applicable legislation

The MoJ will continue to supervise claims management companies (CMCs) for approximately 12 more months. Where its investigations uncover evidence of poor treatment of customers, data protection issues, concerns over marketing practices, issues with the competence of a company’s management, or any other area of concern, then it can still decide to issue a fine, impose conditions on a company’s authorisation, or take the ultimate step of cancelling a company’s authorisation.

From an as yet unspecified date, likely to be in spring 2019, regulation of CMCs will transfer to the Financial Conduct Authority (FCA). The FCA is certain to impose much more stringent requirements on companies in the claims sector and will also be able to impose stricter punishments. The size of the fines the FCA will impose on non-compliant CMCs will be higher than those under the current regime. In addition, the FCA will have the power to impose fines and bans not just on the company itself, but also on a company’s senior management.

CMCs are therefore advised to pay close attention to any communications that are issued in the coming months relating to the FCA handover.

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


Financial Guidance and Claims Bill becomes law

The Financial Guidance and Claims Bill completed its passage through Parliament on May 10 2018. This means that the new Financial Guidance and Claims Act 2018 passed into law on the same date.

The new Act provides for:

  • The transfer of claims management regulation from the existing Claims Management Regulator at the Ministry of Justice to the Financial Conduct Authority (FCA)
  • The Financial Ombudsman Service to be given the power to adjudicate on claims management complaints, a function that is currently carried out by the Legal Ombudsman
  • A new single financial guidance body to replace the Money Advice Service, The Pensions Advisory Service and Pension Wise
  • New arrangements for the funding of debt advice in Scotland, Wales and Northern Ireland
  • A ban on cold calling for the purposes of promoting pension plans and retirement planning

Although officially speaking the Act is now in force, the changes it will bring about have not yet occurred.

At present, it is estimated that the FCA will commence supervision of claims management companies (CMCs) in spring 2019. All UK-based CMCs, including those based in Scotland, will come under the FCA’s jurisdiction from the implementation date.

A consultation regarding how the regulatory framework will operate has already commenced. Under these proposals, issued by the Treasury in April 2018, there will be seven separate ‘permissions’ that CMCs may need to apply for when seeking FCA authorisation.

From the date of the handover of regulation, a temporary permissions regime will apply for a period of 15 months. All CMCs currently regulated by the MoJ will be eligible to register for temporary permissions, as will any CMC who will become regulated for the first time on the handover date, such as those operating in Scotland.

Any CMC that does not register for temporary permissions will have to cease trading prior to the handover date.

During their temporary permission period, each CMC will need to comply with the FCA’s rules and pay the necessary authorisation fees. Companies must then submit an application to the FCA for ‘full authorisation’. Each CMC will be given an application window during which this application must be submitted. If an application is not submitted by the appropriate deadline, then the company must cease trading.

Before the end of summer 2018, the FCA will consult on its proposed new conduct rules for CMCs. It seems likely that the eventual FCA rulebook for CMCs will incorporate most, if not all, of the recommendations of the Brady review, which include:

  • A standardised disclosure document for each CMC sector to improve the quality of information provided to clients
  • Signposting of alternative claims resolution channels
  • A requirement to record all client calls and to retain these for 12 months following the conclusion of a contract

Significant restrictions on the way in which CMCs can promote their services can also be expected under the FCA regime.

Under the FCA regime, senior management of CMCs will also need to get used to the idea of personal accountability. As well as authorising firms to operate within financial services, the FCA authorises key individuals at each authorised firm. This means that CMC directors and management will need to satisfy their new regulator that they are ‘fit and proper’ to carry out their roles. An FCA fit and proper assessment encompasses: honesty, integrity and reputation; competence and capability; and financial soundness.

The creation of the as yet unnamed single financial guidance body is not expected to occur until autumn 2018 at the earliest. The new organisation will have five key aims:

  • Providing guidance on retirement planning, including issues related to accessing defined contribution pension pots
  • Increasing awareness of financial fraud and scams
  • Providing debt advice to consumers with debt problems and issues
  • Improving financial capability in general amongst the UK population
  • Co-ordinating non-governmental financial education programmes for children and young people

The ban on firms engaging in unsolicited direct marketing in connection with pensions could be in force as early as June of this year.

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 proposes changes to FSCS funding classes 

Many people within the financial services industry may have been cheered by the newly-announced changes to funding arrangements for the Financial Services Compensation Scheme (FSCS) – the organisation that protects customers of firms that have become insolvent.

The FSCS’s sole source of funding is a levy on firms authorised by the Financial Conduct Authority (FCA). The existing system has been criticised in a number of ways in recent years, for example the FSCS has recently handled a lot of claims relating to Self-Invested Personal Pensions, and many firms have been forced to foot the bill for this even though they may never have sold that product.

Following a consultation, the FCA has confirmed that the following changes will take effect from April 1 2019:

  • The Life and Pensions Intermediation funding class is to be merged with the Investment Intermediation funding class
  • Pure protection intermediation is to be moved from the Life and Pensions Intermediation funding class to the General Insurance Distribution funding class
  • Product providers will be required to contribute 25% of the funding requirement for the insurance and investment intermediation funding classes
  • The existing compensation limit for investment provision, investment intermediation claims, home finance intermediation claims and debt management claims will increase from £50,000 to £85,000
  • The existing compensation limit for long-term care insurance will change from £50,000 to 100% of the claim, bringing it in line with other pure protection products

The FSCS has also recently announced a significant increase in the levy to be paid by authorised firms for the 2018/19 financial year. The total levy on firms will be £407 million, some £71 million higher than forecast in the FSCS Plan and Budget. The levy on life and pensions advisers has risen by £52 million, and investment advisers will be subject to a levy that is £18 million higher than forecast.

Mark Neale, Chief Executive of FSCS, said:

“The levies announced today provide for the steady increase in claims and compensation costs related to retirement saving. Risks rise as people make increasingly complex choices about the investment of their pension pots, even where investors take the sensible step of taking independent professional advice.

“Many claims reflect bad advice to transfer pension savings from occupational schemes into Self-Invested Personal Pensions, usually with a view to invest in illiquid and risky unregulated products.

“Claims for such advice fall on life and pension advisers. However, as last year, we expect that compensation costs falling to this sector in 2018/19 will exceed the class limit and result in a call on other industry sectors in the retail pool.”

The Personal Investment Management & Financial Advice Association (PIMFA), a trade association that represents financial advisers and wealth managers, said it “greatly welcomes the final rules” announced by the FCA, especially the new requirements for providers to make contributions. However, noting the increase in the 2018/19 charges imposed on firms, PIMFA also called on the FCA to do more through its supervisory activities to mitigate the size of the levy.

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


Posts navigation