A new HM Treasury scheme could give new hope to customers of a prominent mini-bond firm which collapsed in 2019.
The Advertising Standards Authority has banned four Instagram adverts issued by one of the largest firms in the ‘buy now pay later’ credit market. The advertisements must not be used again in the same form, and the firm has also been issued with an instruction not to issue any marketing material in future which makes the suggestion that using their credit product could improve the consumer’s mood.
One of the UK’s major guarantor lenders has said it intends to enter into a scheme of arrangement, which could result in consumers with complaints against the firm receiving less than they expected.
For those unaware, the Financial Conduct Authority (FCA) does not receive any government monetary support but rather survives off the fees levied off regulated firms. Application fees, fines and annual fees calculated by firm submissions on the Regdata system (formerly GABRIEL) all cover the FCA’s operational costs.
Despite this, the FCA has released consultation paper: CP20/22 in November last year. Relatively under the radar, the FCA is seeking responses from regulated firms on its proposals to raise and restructure its price tags. Broadly, the FCA is looking to increase fees throughout most permission scopes citing inflation and increasing operational costs as the reason for the ‘price hike’. Interestingly, the FCA is focusing on raising application fees more so than existing annual fees as it recognises this will allow firms already trading who have been affected by the pandemic to not suffer further.
The fees increase is in ‘the consultation stage’ where firms can offer responses to the paper and answer the questions within it posed by the FCA. These changes will not really affect existing regulated firms unless Variation of Permissions (VOP) applications are undertaken (which are proposed to be calculated at 50% of the initial fee of the sought after permission) or regulated firms who submit applications for new Approved Persons under the Senior Managers & Certification regime where a fee of £250 will be charged (previously this was free). However, this does present a troubling barrier for markets access for new firms if finalised.
For example Claims Management Companies (CMC) application fees under the current model are calculated on the projected income of the applicant firm. This is set to change to category 6 £10,000 fee irrespective of the regulated income projected, CMCs who will only lead generate and market for claims will all be expected to pay Category 4 £2,500 regardless of income which is also a large increase from its previous cost (108% increase). This could mean smaller firms are out of pocket more severely for applying to the FCA under these new proposals, perhaps this is intended by the FCA as a way to limit its workload.
Another example which is less affected but still set to become more expensive is Mortgage Broking and Insurance Broking applications. Originally a flat £1,500 is also set to increase to Category 4 £2,500. There are some winners however which are set to potentially get cheaper application fees. Consumer Credit Broking applications (depending on complexity) are set to be streamlined and no longer be calculated on income. Full authorisation Credit Broking, at present, is anywhere between £600 – £5000 depending on the income figure submitted. Under the new proposals this will be a Category 3 application of only £1000 irrespective of income.
The general trend by the FCA for these proposals are to remove income dependent fee calculations and streamline the whole fee structure. There is a maximum of 10 categories which arguably does make the fee structure far more straightforward than what firms have to experience now. Despite all this, the new proposals look to set up further barriers for certain firms such as the FCA’s area of focus, CMCs.
If you are a firm looking to set up and gain an FCA authorisation and you are part of a category which is set rise in price, it may be worth submitting your application sooner rather than later. The FCA’s timetable for finalisation is not until June/July of 2021 however, these applications take time so do not waste this opportunity before fees increase. Scott Robert can help with the application process contact us further, for more information on how we can submit your application before the fees inevitably change.
Alternatively, the FCA is welcoming responses from regulated firms, click here for FCA paper: CP 20/22 for your chance to review the changes and give your feedback. Feedback closes on January 22nd.
FCA annual fines at a record low, but it highlights the sums paid in redress as evidence it maintains a tough enforcement stance
The Financial Conduct Authority issued just 10 fines during 2020, the lowest number since the organisation’s foundation in 2013. The total of these penalties was £183.6 million, which is the third lowest annual total.
The number of fines is significantly lower than in previous years. It is less than half the 2019 total of 21, and scarcely one-third of the annual average of 29. In its first year, 2013, the FCA issued 48 monetary penalties.
The total amount of the 2019 fines was £392 million, so this year’s total is less than half of that. The average since 2013 in this respect is £508 million, with a peak of £1.47 billion in 2014.
The largest fine this year was a £64 million penalty for a high street bank over its treatment of mortgage customers who were in financial difficulties.
The FCA stressed that, in addition to the £183.6 million in fines, it has forced firms to pay a further £617 million in compensation to disadvantaged customers. This is illustrated by the last of the year’s fines, where another high street bank paid received a £26 million fine for its treatment of consumer credit customers who fell into arrears or experienced financial difficulties. However, the bank has also paid £273 million in compensation to disadvantaged customers affected by this issue.
Other fines imposed by the regulator this year include:
- £100,000, and a prohibition, for market abuse (on two occasions)
- £107,200 for an advisory firm that gave unsuitable advice regarding Self Invested Personal Pensions
- £3.4 million for a firm that failed to manage risks relating to wholesale broking
- £48 million for an investment bank for its role in the 1MDB embezzlement saga
- £873,118 for a firm that failed to disclose a short position
- £41,400 and £23,200, together with prohibitions, for directors of an advisory firm that gave unsuitable advice regarding Self Invested Personal Pensions
- £2.8 million for a motor finance lender that didn’t give customers in arrears sufficient time to pay their debts
2020 also saw the FCA cancel the permissions of 132 firms, issue prohibitions to 15 individuals and commence five sets of criminal proceedings.
An FCA spokeswoman said:
“The purpose of enforcement is not just penalties. It is to ensure just outcomes and to deter future misconduct. Dealing with the consequences of misconduct is as important as any penalty. This year alone we secured redress and compensation totalling £617 million, making sure that firms made good losses for consumers. This includes cases where we did not impose a penalty.
“Enforcement has continued as normal during the pandemic. We will open cases where we suspect serious misconduct. The number of new cases and outcomes fluctuates month-on-month and year-on-year and nothing much should be read into the figures.
“As well as imposing financial penalties totalling £183 million, we have cancelled the permissions of 132 firms, prohibited 15 individuals and commenced criminal proceedings against five individuals. We have also successfully obtained restitution orders in the High Court worth £16.8 million. We have commenced 154 investigations into firms and individuals so far in 2020.”
A Manchester-based unregulated collective investment scheme administrator has been ordered to pay restitution of £203,007, which reflects the profits it received from its role as operator of the Connaught Income Fund, Series 1. Had it not been for the evidence of financial hardship it was able to provide, the firm would also have been fined £10 million.
For the first 15 months of the fund’s operation, until October 2009, the fund went by the name of Guaranteed Low Risk Income Fund, Series 1. The firm initially marketed the fund as a low-risk investment offering a guaranteed, fixed return of between 8.15% and 8.5% per quarter. The Fund was promoted in this way until around May 2011, when the FCA published a warning that statements being made about the Fund’s risk profile were misleading. The Fund was not in fact low risk nor was the income guaranteed. A description of ‘low risk’ was never likely to be appropriate given the UCIS lent all its assets to the Specialist Partner, an unregulated private company, which in turn invested directly in property in a specialist sector.
The Fund was designed to allow the Specialist Partner of the Fund to draw down money invested in the Fund to provide short term bridging finance to commercial borrowers in the UK property market. The FCA says that the firm which has been subject to the enforcement action failed in its duty to carry out appropriate due diligence on the Specialist Partner, and also on the Specialist Partner’s parent company, which claimed to guarantee the Fund’s income and the Specialist Partner’s borrowing from the Fund.
A further criticism made by the FCA is that the marketing materials for the Fund contained misleading statements that the Fund’s assets would be used for short term lending – for periods of three to six months – when in fact many of the Fund’s assets were lent for significantly longer terms, such as two years or more.
Other potentially misleading statements in the marketing material included:
- The Fund’s assets would be lent at conservative loan-to-value ratios to increase the likelihood of full recovery in the event of default
- Lending from the Fund for bridging loans would be secured
The FCA makes no criticism of the Specialist Partner or its parent firm.
Scott Robert are compliance consultants based in Manchester delivering solutions to regulated businesses.
Most financial firms have been forced to adapt to remote working this year. Regardless of the personal feelings of firms’ senior managers about how practical it might be, it isn’t really something about which they have had much choice. Aside from the natural instinct to minimise the Covid risk to staff and customers, the Government and Financial Conduct Authority have both said that staff should only be working in business premises where it is not possible for them to work from home.
In the longer term, even if the wider world returns to normal, there are indications that more firms will choose to offer home working to their staff, at least for part of their working week.
With the increase in home working though comes an increase in various risks. The FCA expects all authorised firms to manage risks on a continuous basis, which means thinking about the adverse events that could occur, how likely these events are to occur, how significant an impact the event would have, and how the risks can be mitigated.
Are the external devices staff are using at home protected to the same extent as the PCs they might use in the office?
Firms should emphasise to their staff the importance of keeping company information secure when at home. This means that they should lock their screens when they leave them, so that people they live with can’t see them. If they are in a video conference or similar, ideally they should go somewhere quiet where they are less likely to be disturbed and where someone is less likely to walk in and hear what is being discussed. Any device issued to staff for home working should not be used for personal matters, for example social chats, watching TV and video content, web surfing, personal Office files.
Remember that firms are still required to monitor their staff while they work from home. The rules remain unchanged and several FCA speakers have stressed this point recently. Senior managers need to have systems in place to ensure performance monitoring continues. For example, many firms have put in place arrangements to allow call centres to operate from employees’ personal phones, but are these calls still being recorded and listened to?
Also don’t forget the physical security of office premises, especially if there’s no one working there for long periods at a time. In these circumstances, is there any need for any valuable items to be left there?
Finally, to get the best out of staff, firms need to remain mindful of their welfare. At the time of writing, 99% of people in England cannot socialise indoors with people outside their household or support bubble, as a result of Tier 2 and 3 restrictions. If firms have asked staff to work from home, then by definition they won’t be meeting their colleagues either. Are there ways firms can maintain virtual social contact between employees?
The Financial Conduct Authority has fined a Warrington-based firm £107,200 for failing to give appropriate advice relating to self-invested personal pensions and for not effectively managing conflicts of interest.
The FCA says that the firm advised 114 clients to transfer existing occupational and/or personal pensions into a SIPP, whilst neglecting to ensure that the underlying SIPP investments were suitable for the clients given their needs and attitudes to risk. The regulator adds that many of the underlying investments were “high-risk, esoteric and illiquid” – examples included overseas and commercial property developments. More than £6 million was invested in SIPPs by the firm’s clients, but the FCA says that, in many cases, the clients’ investments are now worthless, at a time when they are approaching retirement and have little opportunity to rebuild their retirement savings portfolio.
The FCA says it has seen an email from a senior employee of the firm to the firm’s compliance services provider which says that the firm did not “want to know” what the underlying SIPP investments were. Indeed, the Final Notice contains an email exchange showing that the firm ignored advice from its compliance consultant, which included statements such as:
“It would not be deemed as acceptable to make a recommendation to transfer into a SIPP without making a recommendation as to where the monies should be invested within.”
The FCA reviewed 10 advice files and says that in each of these the firm failed to:
- Provide a recommendation that was tailored to the client’s circumstances
- Assess whether the SIPP was suitable for the customer
- Calculate the full cost of the transfer incurred by the customer
- Fully record the clients’ objectives
- Assess the clients’ attitude to risk, capacity for loss or level of investment knowledge and experience
- Fully assess the benefits being given up (where the client was transferring out of an occupational scheme)
The FCA also comments specifically on Customer A, who had an income of just £6,000 per annum and hence had a very limited capacity for loss. His only asset of any value was his occupational pension scheme. In the event that this pension scheme was depleted, he would have had no means of replenishing it given his low income and this would have had a materially detrimental effect on his standard of living in retirement. His investment knowledge was also limited and the charges on the SIPP were significantly higher than for his previous pension arrangement.
Furthermore, the firm recommended two other firms to its clients – one wrap platform and one discretionary fund manager – without disclosing that it had shareholdings in both firms and that a conflict of interest might therefore exist.
The advice failings lasted for a period of 33 months between March 2010 and December 2012, while the conflicts of interest issues lasted for some 58 months between January 2013 and December 2017.
The FCA believes that the firm was in breach of two of its Principles for Businesses:
|8 Conflicts of interest||A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.|
|9 Customers: relationships of trust||A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.|
In addition to paying the fine, the firm has been forced to pay significant sums in redress to disadvantaged clients. To date, £2,668,819.97 has been paid to 41 clients and the firm continues to assess whether compensation needs to be paid to other clients.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:
“Investors should be able to trust their financial advisers with the pension contributions they’ve built up over a lifetime of hard work. These failings were especially serious because [name of firm] facilitated the transfer of these investors’ pensions into high-risk investments without assessing whether the investments were suitable for investors.
“In many instances, these investments are now worthless and many investors are approaching or already in retirement and so especially vulnerable to the risk of significant losses. Redress is important but these investors should never have been placed in this position in the first place. Investors should also be able to rely on their financial advisers to manage conflicts fairly and to disclose them so investors are able to make better informed decisions.”
The Information Commissioner’s Office has imposed a £45,000 fine on a London-based firm that made 39,722 unsolicited marketing calls between January and October 2019. The data protection watchdog says that it believes the firm “deliberately set out to contravene” the law and “employed deliberate and opaque tactics to obtain the data of individuals to whom they could engage in direct marketing regarding pension schemes, following the implementation of legislation specifically aimed at protecting individuals from these practices.”
The firm’s principal business is the tracing of lost pension plans, and it would call individuals with the aim of introducing them to an independent financial adviser.
The ICO says that staff working for the firm firstly sent invitations to connect with people via LinkedIn. Once these connections had been established, they illegally called the individuals in an attempt to promote the firm’s services.
Pension cold calling is essentially banned in the UK. Firms can only call to talk to people about their occupational or personal pensions if both of the following apply:
- the caller is authorised by the Financial Conduct Authority (FCA), or is the trustee or manager of an occupational or personal pension scheme, and
- the recipient of the call consents to receiving these calls, or has an existing relationship with the caller
The firm in question is not authorised by the FCA, indeed the issue first came to light when a third party, which was a regulated entity, alleged that this firm had been contacting individuals while passing itself off as the third party.
The ICO also says that the firm was unable to provide any evidence that the individuals whose data was harvested via LinkedIn consented in any way to receiving marketing calls relating to pensions.
The firm had no records to confirm it had carried out any staff training relating to the Privacy and Electronic Communications Regulations and the restrictions these impose on direct marketing activities.
The 39,722 figure is only the number of calls that were connected and where a conversation took place, and the ICO says the firm attempted to make some 289,679 illegal calls during the nine-month period.
The fine will be reduced to £36,000 if the firm pays by January 13 2021 and does not exercise its right of appeal.
Andy Curry, ICO Head of Investigations, said:
“Unwanted pensions calls can cause real distress and can result in people experiencing significant financial harm. The public have every right to expect companies to follow the law and should not feel harassed or pressured into making life-changing decisions on the basis of cold calls or messages received out of the blue.
“Companies shouldn’t call you to discuss your pension, unless you have given your consent, or you’ve previously dealt with the company. If you do receive an unwanted pensions call, it’s important to report it to the ICO. Every report helps us to take action and stop these nuisance calls.”
Scott Robert are compliance consultants delivering solutions to regulated businesses.
The Information Commissioner’s Office has fined a Lincolnshire mortgage brokerage firm £50,000 for breaching the law relating to marketing texts.
The firm sent 174,342 nuisance marketing texts about mortgages between June 2019 and June 2020, most of which highlighted a fall in buy-to-let interest rates and invited the recipient to call to discuss a BTL mortgage.
The firm was apparently operating under the misapprehension that all recipients had consented to receiving the marketing texts when they contacted the firm via their website to obtain a quote. However, the ICO says that the firm was not entitled to use the customer data for marketing purposes as, at that stage, people were not offered the option to opt in or out of receiving marketing material.
The regulator therefore concluded that the firm had breached section 22 of the Privacy and Electronic Communications Regulations.
The General Data Protection Regulation states that consent must be freely given, specific and informed and there must be an indication signifying agreement given ‘by a statement or by a clear affirmative action’. Again, that would appear not to have been the case here, given that the recipients simply enquired about the firm’s services and never explicitly opted in to receiving marketing communications.
An example of one of the firm’s messages was:
“Hi XXX I hope you are well, Its XXX from [trading name of firm], you previously made a Buy to Let Purchase enquiry with us. Since the Pandemic Buy to Let rates have dropped to 1.19% if you are looking to purchase a Buy to Let property then please reply with a time that is convenient for you or alternatively please call us on [phone number of firm] opt 1 and we will be free to speak with you. Kind Regards XXX [trading name of firm]”
The investigation only covered the 12-month period between June 2019 and June 2020, but the firm has admitted using the same marketing approach since 2015, so the actual number of breaches could be significantly higher.
The fine will be reduced to £40,000 if the firm pays by January 4 2021 and does not exercise its right of appeal.
Natasha Longson, ICO Investigations Group Manager said:
“The rules about electronic marketing are simple and clear. Consent must be freely given, and it must not be a condition of receiving a service.
“Nuisance texts, calls and emails are an unwanted and annoying intrusion into people’s lives, and we will continue to take action against those that do not comply with the law.”