The FSA machine for producing new Investor Protection measures continues with this latest 80 page Consultative Paper aimed at tightening up the CASS Sourcebook in the light of the Lehman Bros saga.
Thankfully, this only extends to those Firms involved in Prime Brokerage that handle Client Assets - and does not extend to Insurance Brokers!
Re hypothecation - Firms will be required to include contractual provisions to be summarised in a disclosure annex to the PBA. The objective is to highlight relevant definitions including that of net client indebtedness and contractual limit on re-hypothecation. It will include a statement setting out the risk to the client upon the prime broker’s default and cross-reference detailed provisions in the PBA. This in turn may help reduce the time required for legal due diligence undertaken by an insolvency practitioner following a prime broker’s collapse.
Daily reporting - Firms will be required to provide clients with access to up-to-date information regarding their accounts.
Client Money - a maximum of 20% may be held internally within Group Client Money Accounts.
New SIF - Controlled Function - One of the Senior Executives within the Firm will have to assume full responsiblity for Client Assets oversight - and will need to be able to demonstrate that ongoing controls are in place.
CMAR - new reporting requirement. Firms will be required to submit Monthly reports to the FSA. Those Firms that are categorised as "Small" will be required to complete CMAR returns on a half yearly basis.
Comments on this Consultative Paper are invited by 30th June 2010 - and our friends in Europe may also have a view.
Tuesday 30 March 2010
Friday 26 March 2010
Unsuitable Investment advice
The latest paper on COBs - Conduct of Business (cobs) post-implementation review: final statement on findings is an excellent read for those suffering from Insomnia!
Having required Firms to bombard Clients with mountains of information in a prescribed manner for many years finally common sense has prevailed. Most of the "bumpf" rarely gets read by consumers and often finds its way into the wpb. How many trees have been sacrificed in the name of "investor protection" I wonder?
The latest "final" statement still leaves a number of unanswered questions. COB's 9.4 might be extended to cover additional asset classes in the future. Here, the FSA are talking about suitability reports to retail clients covering unregulated collectives; CFD's and certain structured products.
The paper also makes reference to the relaxation in the rules concerning "wealth warnings". Firms are reminded to only use those that are appropriate and relevant to the specific Financial Promotion. If you are not quoting past performance data then there is no need to state "past performance is not a guide to the future". Firms can also target their marketing towards specific market segments and use appropriate language - but few are at present.
Interstingly, the Paper highlights current FSA thinking on unsuitable advice :
The customers needs and circumstances have not been met;
Are you able to demonstrate on your client files that the outcomes meet client requirements?
Having required Firms to bombard Clients with mountains of information in a prescribed manner for many years finally common sense has prevailed. Most of the "bumpf" rarely gets read by consumers and often finds its way into the wpb. How many trees have been sacrificed in the name of "investor protection" I wonder?
The latest "final" statement still leaves a number of unanswered questions. COB's 9.4 might be extended to cover additional asset classes in the future. Here, the FSA are talking about suitability reports to retail clients covering unregulated collectives; CFD's and certain structured products.
The paper also makes reference to the relaxation in the rules concerning "wealth warnings". Firms are reminded to only use those that are appropriate and relevant to the specific Financial Promotion. If you are not quoting past performance data then there is no need to state "past performance is not a guide to the future". Firms can also target their marketing towards specific market segments and use appropriate language - but few are at present.
Interstingly, the Paper highlights current FSA thinking on unsuitable advice :
The customers needs and circumstances have not been met;
The recommended Product exposes the customer to an inappropriate level of risk including overconcentration of assets in a single product or product type.
Recommendation failed to meet the customers tax needs
Are you able to demonstrate on your client files that the outcomes meet client requirements?
Saturday 20 March 2010
CP 10/7 - Call recording - exemption to be removed
The FSA have published Consultative Paper CP10/7 regarding the removal of the exemption for recording mobile phone messages. Comments are invited by 14th June 2010.
The FSA are not planning on extending the recording requirements beyond those Firms currently caught by COBS 11.8 - Banks, Investment Houses, Hedge Funds and the like - MIFID Firms are caught but IFA's, Insurance or Mortgage Brokers are not.
From Q4 2010 Firms will be required to have in place adequate arrangements to capture, store and retrieve "relevant" calls made on hand held devices - this may take the form of voice, SMS, IM or video messaging. Records will need to be available for 6 months.
Data protection issues regarding the capture of "personal" conversations and messages have been addressed. The FSA expects Firms to have in place arrangements to ensure that business calls are only made on Firm supplied / sponsored equipment. Looks like everyone will therefore be expected to keep two phones - one (recorded) for business and a personal phone for non business stuff.
I am sure that this is going to open up a significant can of worms and smacks of big brother.
the rationale behind it is that it closes a loophole - but what is going to stop the deliberate transgressor who simply has a third phone for doing the "dodgy deals?". The objective is to provide more evidence of a contemporaneous nature and prevent Market Abuse.
Staff that play by the Rules have nothing to fear from over zealous Compliance Officers.
I wonder what this will do to the share price for Information Technology Companies who are able to provide elegant solutions?
Wednesday 17 March 2010
Here comes Hector
I guess that my blog last Thursday was timely. last Friday Hector Sants, CEO at the FSA delivered the Annual Lubbock Lecture in Management Studies.
UK Financial Regulation: After the Crisis. Interstingly, his speech identified two key drivers that the FSA need to address:
1. Poor prudential rules and polices - something that the FSA and earlier regulators have been responsible for tinkering with since 1988. Conveniently, the EU is cited as the driver behind many decisions. That however has not stopped an element of "gold plating" by UK Regulators since A day - (April 1988).
2. Supervisory practices - ensuring that the prudential rules and policies are adhered to by practioners.
The new approach that is to be adopted is "Outcomes based" and delivered through intensive supervision. Historically, the FSA would be reactive to a problem. Going forwards, I believe that the FSA will be looking for problems BEFORE they happen - proactive rather than reactive - about time too.
We can expect :
More product regulation
Earlier interventions across a sector
Better integrated risk modelling
Greater use of Mystery shopping
Increased site visits
The aim of this is threefold:
To improve the long term efficiency / fairness of the market
Deliver intensive supervision - TCF as an example
Ensure that appropriate redress and compensation is secured to provide a Visible deterrence to those individuals and Firms that transgress.
UK Financial Regulation: After the Crisis. Interstingly, his speech identified two key drivers that the FSA need to address:
1. Poor prudential rules and polices - something that the FSA and earlier regulators have been responsible for tinkering with since 1988. Conveniently, the EU is cited as the driver behind many decisions. That however has not stopped an element of "gold plating" by UK Regulators since A day - (April 1988).
2. Supervisory practices - ensuring that the prudential rules and policies are adhered to by practioners.
The new approach that is to be adopted is "Outcomes based" and delivered through intensive supervision. Historically, the FSA would be reactive to a problem. Going forwards, I believe that the FSA will be looking for problems BEFORE they happen - proactive rather than reactive - about time too.
We can expect :
More product regulation
Earlier interventions across a sector
Better integrated risk modelling
Greater use of Mystery shopping
Increased site visits
The aim of this is threefold:
To improve the long term efficiency / fairness of the market
Deliver intensive supervision - TCF as an example
Ensure that appropriate redress and compensation is secured to provide a Visible deterrence to those individuals and Firms that transgress.
Thursday 11 March 2010
Applications for Part IV permission and VOPs
The published statutory service standard for completing "clean" applications and VOPS is 6 months and 12 months for incomplete applications.
Many Firms will have experienced delays with their applications and the FSA have taken action to improve matters. Back in November 2009 some 300 applications took in excess of 5 weeks to be assigned to a Case Officer. this figure has since reduced to some 100.
As each Case Officer is likely to have up to 20 ongoing applications it is particularly unhelpful if applicants or their advisers keep hassling Case Officers on a daily basis.
The FSA have recruited additional staff to handle applications and further staff will be joining the Permissions, Decisions and Regulatory Reporting Team over the next few weeks.
Applicants are under much closer scrutiny than previously - the onus is on the applicant Firm to demonstrate competence and does the application stack up?
Does the business plan support the planned business model?
Are the Owners / Managers of the business competent to run a Regulated Firm?
Have there been any past issues involving the Directors - previous businesses going into Administration etc?
Where does the Capital for the business come from?
Do the staff dealing with customers have the necessary skills, knowledge and qualifications to advise clients?
What IT systems will be adopted?
Is there a "believability factor" with the application?
The FSA have noted that most applicants now use the services of professional advisors - Accountants or Compliance Consultants. Whilst this is helpful, the FSA still require the main contact for the application to come from within the business.
It was a breath of fresh air for the FSA to admit their shortcomings - and demonstrate the steps that they had taken to speed up the process for dealing with applications.
Those Firms that are currently Authorised should review their current permissions and where necessary apply to deregister any that are no longer required. Permissions as at the end of March determine the fee blocks applicable for the following 12 months. The FSCS fees can be onerous and there seems little point paying unnecessary fees. Some 30% of VoPs are received during February and March.
Time to review your permissions.
Many Firms will have experienced delays with their applications and the FSA have taken action to improve matters. Back in November 2009 some 300 applications took in excess of 5 weeks to be assigned to a Case Officer. this figure has since reduced to some 100.
As each Case Officer is likely to have up to 20 ongoing applications it is particularly unhelpful if applicants or their advisers keep hassling Case Officers on a daily basis.
The FSA have recruited additional staff to handle applications and further staff will be joining the Permissions, Decisions and Regulatory Reporting Team over the next few weeks.
Applicants are under much closer scrutiny than previously - the onus is on the applicant Firm to demonstrate competence and does the application stack up?
Does the business plan support the planned business model?
Are the Owners / Managers of the business competent to run a Regulated Firm?
Have there been any past issues involving the Directors - previous businesses going into Administration etc?
Where does the Capital for the business come from?
Do the staff dealing with customers have the necessary skills, knowledge and qualifications to advise clients?
What IT systems will be adopted?
Is there a "believability factor" with the application?
The FSA have noted that most applicants now use the services of professional advisors - Accountants or Compliance Consultants. Whilst this is helpful, the FSA still require the main contact for the application to come from within the business.
It was a breath of fresh air for the FSA to admit their shortcomings - and demonstrate the steps that they had taken to speed up the process for dealing with applications.
Those Firms that are currently Authorised should review their current permissions and where necessary apply to deregister any that are no longer required. Permissions as at the end of March determine the fee blocks applicable for the following 12 months. The FSCS fees can be onerous and there seems little point paying unnecessary fees. Some 30% of VoPs are received during February and March.
Time to review your permissions.
RIP Principles based regulation?
I hope not - but fear that the FSA are now moving to an era of Enforcement Based Regulation. In recent years we have seen a steady increase in the number and size of Regulatory Fines.
Currently there are some 18,000 Firms classed by the FSA as Small Firms and regarded as low risk. Such Firms have managed to slip under the regulatory radar and avoid intensive supervision. Things are about to change.
The Treating Customers Fairly project has been moved within the FSA to "Business as usual" and 2/3 of Firms have now had their initial contact so far.
Over the last 6 months the FSA have recruited seasoned professionals with a detailed market knowledge in order to beef up their supervison teams. We can expect a shift form a reactive to a proactive approach going forwards.
The FSA have developed an updated risk profiling tool - GABRIEL returns should correspond with the appropriate return at Companies House. The FSA are keen that professional advisers including Accountants are mindful that the records must demonstrate the Financial Integrity of the business - including Capital Adequacy.
A new feature that the FSA have added in is "believability test" - does your GABRIEL return appear reasonable and sound? How does it compare with previous returns? Is there a skew to your product mix? Do you have any adverse comments appearing on the ELIXIR system run by the Life Offices?
So what you may ask? But an increasingly politicised FSA seems to be using high profile fines and prohibitions and a visible deterant. Yet Firms still get it wrong. Anecdotal evidence indicated that where historically a breach had taken place and reported to the FSA in good time no further action took place. Not any more.
Last year saw 80 Mortgage Brokers having their licences removed and the businesses closed down as a result of FSA intervention. The Mortgage Market Review has suggested that those Individuals engaged in advising or arranging Mortgages will become a controlled Function. Interestingly, it looks as if the FSA have already decided that is a good idea and are pressing ahead with developing an on line system for processing the 20,000 or so anticipated applicants. Some 5,000 of which are likely to be treated as non-routine and warranting further dtailed investigation.
Currently there are some 18,000 Firms classed by the FSA as Small Firms and regarded as low risk. Such Firms have managed to slip under the regulatory radar and avoid intensive supervision. Things are about to change.
The Treating Customers Fairly project has been moved within the FSA to "Business as usual" and 2/3 of Firms have now had their initial contact so far.
Over the last 6 months the FSA have recruited seasoned professionals with a detailed market knowledge in order to beef up their supervison teams. We can expect a shift form a reactive to a proactive approach going forwards.
The FSA have developed an updated risk profiling tool - GABRIEL returns should correspond with the appropriate return at Companies House. The FSA are keen that professional advisers including Accountants are mindful that the records must demonstrate the Financial Integrity of the business - including Capital Adequacy.
A new feature that the FSA have added in is "believability test" - does your GABRIEL return appear reasonable and sound? How does it compare with previous returns? Is there a skew to your product mix? Do you have any adverse comments appearing on the ELIXIR system run by the Life Offices?
So what you may ask? But an increasingly politicised FSA seems to be using high profile fines and prohibitions and a visible deterant. Yet Firms still get it wrong. Anecdotal evidence indicated that where historically a breach had taken place and reported to the FSA in good time no further action took place. Not any more.
Last year saw 80 Mortgage Brokers having their licences removed and the businesses closed down as a result of FSA intervention. The Mortgage Market Review has suggested that those Individuals engaged in advising or arranging Mortgages will become a controlled Function. Interestingly, it looks as if the FSA have already decided that is a good idea and are pressing ahead with developing an on line system for processing the 20,000 or so anticipated applicants. Some 5,000 of which are likely to be treated as non-routine and warranting further dtailed investigation.
Wednesday 3 March 2010
Currency fluctations and PI Insurance
Last March new minimum levels of cover came into force for those firms conducting non investment insurances - ie those firms that advise and arrange Insurance business.
The new limits were brought about by the Insurance Mediation Directive (IMD) - in line with the increase in the European Index of Consumer Prices, over the five-year period since the IMD's entry into force.
Firms must now have a minimum level of cover of €1,120,200 for a single claim and €1,680,300 in aggregate.
The FSA expects all such policies to at least meet the minimum level of cover at the outset and throughout the duration of the policy.
Most PI policies however determined in British Pounds - the recent exchange rate fluctation has meant the Sterling equivalent sum insured has fluctuated over the last 120 days sharply:
Highest (Oct 13th 2009) 0.940801 - £1,190,688 - single claim
Lowest (Jan 28th 2010) 0.8616 - £1,300,140
2nd March 2010 0.906351 - £1,235,946
(source www.x-rates.com)
Care is required by Firms to ensure that adequate cover is in place - the onus is on the Firm and not the FSA.
Time to check your level of cover.
The new limits were brought about by the Insurance Mediation Directive (IMD) - in line with the increase in the European Index of Consumer Prices, over the five-year period since the IMD's entry into force.
Firms must now have a minimum level of cover of €1,120,200 for a single claim and €1,680,300 in aggregate.
The FSA expects all such policies to at least meet the minimum level of cover at the outset and throughout the duration of the policy.
Most PI policies however determined in British Pounds - the recent exchange rate fluctation has meant the Sterling equivalent sum insured has fluctuated over the last 120 days sharply:
Highest (Oct 13th 2009) 0.940801 - £1,190,688 - single claim
Lowest (Jan 28th 2010) 0.8616 - £1,300,140
2nd March 2010 0.906351 - £1,235,946
(source www.x-rates.com)
Care is required by Firms to ensure that adequate cover is in place - the onus is on the Firm and not the FSA.
Time to check your level of cover.
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