Treating Customers Fairly III

Outcome 3 - Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.

Have you updated your initial disclosure material or terms of business to reflect the FSCS changes announced in January? Do your client files consistently record details of information obtained from and provided to the customer? Is the file up to date?

Can you demonstrate that all of your communications are clear, fair and not misleading? your marketing material - do you ensure that any information is "balanced" and important exclusions are prominently disclosed? Would it pass the "mother in law test?"

Where you have more than one adviser working within the business are you satisfied that all advisers operate to a consistent high standard? Are any issues identified as part of the monitoring process recorded and appropriate training provided to avoid any repetition?

How satisfied are you that Customers have a good understanding of information that you have provided? Can you prove it?

Fighting Financial Crime

The FSA has published the findings of its review into small firms’ anti-financial crime systems and controls, which covered anti-money laundering and financial sanctions, data security and fraud controls. 159 small Firms were part of the review. The findings indicate that the small firms sector is “generally weak in its assessment and mitigation of financial crime risks”. Just over half of the firms reviewed had used outside compliance consultants to produce policies and procedures.

Exciting stuff - generally speaking IFA's need to pull their socks up. As is often the case, business owners will invariably "tick the box" that they have something written down and then either fail to adapt it to reflect their individual needs or simply ignore the process altogether.

Firms are required to have systems in place to verify that they are not being used to facilitate financial crime.

This will include:

Adequate controls on recruitment - including taking up CRB checks where appropriate

Verification of identity and sources of funds

Provision of training to staff on tackling financial crime

Controls over dealing with politically exposed persons (PEPS)

Ensuring that existing and prospective customers are not on the treasury blacklist.

Having strategies in place to identify and tackle potential fraudulent activity / market abuse.

Appropriate due diligence systems to identify or deal with higher-risk customers or situations.

Clear and effective procedures for managing suspicious transactions including reporting to SOCA.

I expect that this will be another topic on the shopping list for discussion when the FSA next turn up at a small firm near you - How do your controls stack up?

For help and guidance contact me at info@compliantsolutions.co.uk

Treating Customers Fairly II

Outcome 2 - Products and Services sold in the RETAIL market are designed to meet the needs of identified customer groups and are targeted accordingly.

As an Insurance / Investment / Pensions / Mortgages arranger or adviser you may think that this only applies to Product Providers and lenders. Not so - increasingly, firms are looking to offer their clients attractive products that may include an element of "white labeling".

Distributor Influenced Funds seem to be a current "flavour of the month" topic of concern for the FSA - if you are marketing such funds what steps have you taken to be satisfied that you continue to treat your customers fairly?

Insurance Intermediaries - do you operate with a "Binder" and as a result have a facility to direct clients to a specific Insurer? Do you have a profit share arrangement in place and if so, how are you able to demonstrate that you are not "jogging against the pot"? By placing the best risks with the Insurer offering profit share are you maximising your profit opportunity at the expense of the client?

For packaged products are you able to demonstrate that you are selling the right products to the right clients consistently? What levels of business are written on a non-advised / execution only basis? How confident are you that clients have a good understanding of what they are acquiring?

Ignorance is bliss - just because the customer completes a customer satisfaction survey and gives the firm a 10/10 for service does not mean that they have been treated fairly - how do you stack up?

Minimum Capital Requirements

One of my clients had a run in with the FSA recently - thankfully now all resolved.

Imagine the situation:

You are a provincial IFA doing an excellent job for your clients and have never had a complaint in 5 years trading. Your clients love you and provide a steady stream of referrals.

Having been nagged by me about minimum capital in the business you set aside funds on deposit.

You keep on top of your cashflow and have regular management accounts. A very well run business.


Your year end is 31st December and you make £15,000 profit. Your capital requirement is only £10,000*

On the GABRIEL return for the year ending 31st December you state that your Capital within the Firm is £15,050 including fixed assets and cash etc.

Your Accountant then has eight months to finalise your books and submit them to Companies House and HMRC.  During the period between 31st December and when the accounts are finalised you make a further £20000 in profits. Your Accountant suggests that you draw a dividend of £15,000 and charge it to the last year. After all, the interim profits for the current year mean that you still have over £15,000 in the bank.

Wrong. By taking the Dividend from the previous tax year this resulted in the capital position of the Company as at 31 December being only £50.  Who ever said that cash was King?

A simple error and easily rectified - the Accountant was able in this instance to provide sufficient comfort to the FSA that the Firm had sufficient resources - better safe than sorry and avoid grief from the FSA and a large bill from your Accountant.

* dates and numbers have been changed to protect client confidentiality.