Help with maintaining your Financial Conduct Authority Authorisation

Verification of Identity - are Bank Statements OK?

An interesting question,

Regulated Firms are required to undertake appropriate verification of prospective customers including Identity; address and source of funds.  Firms also need to undertake enhanced due diligence if the prospective customer is a politically exposed person.

Part I of the Joint Money Laundering Steering Group guidance notes provide a "safe harbour" for Firms and covers clarity on obtaining standard evidence.

Current bank statements issued by a regulated financial sector firm in the EU or equivalent jurisdiction are acceptable where the Statement is an "Original".   The development of paperless facilities has meant that many prospective clients may only receive "on line" statements.  Online statements and those printed from Account Services terminals within Bank Branches are not acceptable and an alternative means of verification of address should be obtained.

Care is also needed as any "originals" need to be recent - less than three months old and correspond with the address provided by the prospective customer.

Getting Ready for the Mortgage Credit Directive

The objective of the Mortgage Credit Directive (MCD) is to enable a level playing field for providers and intermediaries across the European Union and promote cross border activity.

Mortgage businesses will need to be ready for 21 March 2016 - the clock is ticking.

Lenders will need to review and refine their affordability and forbearance arrangements - with borrowers likely to be subject to even more intrusive scrutiny of income and expenditure.

RIP the Key Facts Illustration - Firms will have to provide a European Standard Information Sheet (ESIS).

The formula for calculating the Annual Percentage Rate is also going to have to be changed and require Firms to calculate the Annual Percentage Rate of Charge (APRC).  Given that Firms will be allowed some transitional allowance for implementing the changes I fear that this will leave borrowers even more confused as different institutions may be operating on the old or new basis for a while.

Firms that currently undertake Buy to Let Mortgages will need to act promptly to apply to undertake a Variation of Permission with the Financial Conduct Authority via the CONNECT system - for existing Mortgage Brokers this will be a relatively simple tick two boxes exercise and the payment of a modest additional fee to the FCA.   The FCA will be introducing a new category  - Consumer Buy To Let Mortgages - which will be subject to the MCOB regime from March 2016.

Second Charge lending will also become subject to the MCOB regime from March 2016 - and as a result such Firms will need to think about longer term requirements - including ensuring that all relevant staff are appropriately qualified to level 3.

As with most regulatory issues the devil is in the detail....

Alternative Dispute Resolutions for Consumer Disputes

The Alternative Dispute Resolutions for Consumer Disputes (Competent Authorities and Information) Regulations 2015 SI No 542 came into force on 9th July.

Full details may be found at http://www.legislation.gov.uk/uksi/2015/542/pdfs/uksi_20150542_en.pdf

Details of the Financial Ombudsman Service are already included in Terms of Business / Initial Disclosure Documents etc.  The new Regulation now also requires a statement to appear on Websites of "Traders" and a suggested wording is as follows :

"The Financial Ombudsman Service (FOS) is an agency for arbitrating on unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on its website at www.financial-ombudsman.org.uk." 

The definition of " Trader" is sufficiently broad to cover most "by way of business" activities and as a result you will need to add in this additional statement on the home page of your website(s).

Financial Crime Risk Assessments

Firms need to have robust controls in place to mitigate against financial crime. A financial crime risk assessment should be undertaken on a regular basis and documented accordingly.

The risk assessment should include a within the jurisdictions it operates in, the types of customers it attracts, the complexity and volume of the transactions and the means of distributing the products to customers. The risk assessment should be business wide and also take into account individual relationships.

Does your review cover :

• An assessment of the financial crime risks to which the firm may be exposed as a result of the products and services it offers;
• Staff training; frequency and coverage;
• A review of the jurisdictions that you operate within;
• The types of customers that you deal with and their physical location;
• The complexity and volume of the transactions;
• Non-standard verification – the exception or the rule;
• The source(s) of funds;
• Routes to market – how you distribute products and services;
• Internal risks – the role of staff;
• Third parties - their role within the business ?

Revised proposals - financial resources requirements for IFAs

The Financial Conduct Authority in Consultation paper 15/17 are looking to change the capital resource requirements for personal investment firms. The FCA are inviting comments from firms which need to be in by the 7^th September 2015.

The new proposals will initially be introduced on the 30^th June 2016 and full requirements will apply from the 30^th June 2017.

At present, personal investment firms (article 3 exempt ) currently have a capital requirement of £10,000.

From 30^th June 2016 the minimum capital requirement will be the higher of £15,000 or 5% of gross income from designated investment business.

From 30^th June 2017 the minimum capital requirement will be the higher of £20,000 or 5% of gross income from designated investment business.

Firms that are exempt capital adequacy directive firms i.e. those that have opted into mifid in order to passport into other EEA states and which undertake insurance mediation business currently have a capital 25,000 Euros.

From 30^th June 2016 the minimum capital requirement would move to 25,000 Euros, £15,000 or 5% of gross income from designated investment business.

From the 30^th June 2017 the minimum capital requirement would be the higher of 25,00 Euros, £20,000 5% of gross income from designated investment business.

The proposed changes  will also place a restriction on the amount of subordinated loan and preference shares that can be used as eligible capital. This will be brought into line with insurance intermediaries with the restriction to 400% of the firms other capital and reserves less intangible assets. This change will take place 30^th June 2017.

More on Pensions freedoms and small pots

I have had several questions raised about Insistent Customers with the new Pensions Freedoms.

The new Pensions Minister, in her maiden speech to the House of Lords,  made reference to cashing in small funds - I have highlighted the relevant paragraph in blue for information :

"....As regard the pension freedoms, there are some who say the financial industry or the government know best what people should do with their private pension and that most people can’t make sensible decisions for themselves. Well, I disagree. Yes, some may be reckless and most will need protection, guidance, and even advice, but the new pension freedoms are right in my view. I have long been an advocate of trusting people with their own money. I was acutely aware of how the one-size-fits-all approach of the past meant too many people (unless they had very large pension funds) were forced to buy annuities that were often not suitable for their needs.

The previous system most benefited the wealthy, but we have now offered more choice and flexibility for the majority of savers too. The reforms are particularly helpful in that they use the tax system to incentivise people to keep money in their pensions into later life. By taxing lump sum withdrawals, removing the 55% tax on death and allowing pension savings to pass to the next generation free of inheritance tax, there are strong reasons for people to keep pensions rather than spend them too soon. These reforms will also encourage more people to save in pensions in the first place.

Of course we must also make sure that customers have good value options to choose from. The pensions industry needs to help individuals act as they would like to and as the law now allows, but so far, too many firms are not offering many new options to their customers, or are imposing hefty charges, lengthy delays or exit penalties on those wishing to transfer to other providers. This is most disappointing.

As my Rt Hon friend, the Chancellor of the Exchequer announced in another Place, we will be launching a consultation next month, asking the industry, consumer groups, media and individuals to submit evidence of the actual reality facing customers in this new landscape. We need the evidence in order to inform any action that might be required to ensure the market works as intended and customers are treated fairly. We must not allow consumer rights to play second fiddle to the interests of large financial firms. Ultimately it is in the interests of providers to look after their customers well. Their long term success requires a new approach.

I know there have been fears that too many over-55s might just cash-in their entire pension, but so far the signs are more positive with people generally being responsible. Those that cash in small funds may well be acting rationally, especially if they are repaying debt. Just buying an annuity with a small fund will hardly make a huge difference to their retirement income. I am sure we will encourage far more pension saving if we empower people to take responsibility for their own income rather than forcing them to do something that may not be right for them.

It has been important that the freedoms have been accompanied by the creation of Pension Wise, which has already been used by many thousands of people with free and impartial guidance to help people understand the options available to them, and the risks and costs associated with each. People need to be alive to the risk of scams and Pension Wise staff are working hard to raise awareness of this important issue.

We also need to improve financial education to help the public understand more about long term savings and investment...."

The full text of the speech may be found at https://www.gov.uk/government/speeches/reforms-to-state-and-private-pension-systems

Deposit and Policyholder protection changes

The Prudential Regulatory Authority have today announced that they plan to change the level of deposit and policyholder protection from 31st December 2015. 

The current limit of £85,000 was set as a result of EU directives requiring a level of €100,000.

From 31 December 2015 the new limit will be £75,000.

Further details may be found at 

http://www.fca.org.uk/news/statement-from-the-pra-announces-changes-to-depositor-and-policyholder-protection

This will mean that Terms of Business and other such letters will need to be updated for 2016.

Vulnerable Customers Policy

Background:

The Financial Conduct Authority having assumed responsibility for supervision consumer credit looking at greater emphasis for the need to protect consumers. The Office of Fair Trading research paper 15 identified seven categories of vulnerable persons:

Those on low income,

The unemployed,

Those suffering from long term illness or disability,

Those with a low level of education attainment,

Members of ethnic minorities where English is not their mother tongue

Older people,

The  young.

When dealing with any Customer or potential Customer who falls into one of the categories associated with Customer vulnerability additional steps need to be taken by Staff. Staff members must takes appropriate precautions in the way that they sell and deliver services in order to ensure that the Customer is not disadvantaged in any way.

Identifying a vulnerable Customer

A vulnerable Customer is someone who, due to their personal circumstances is especially susceptible to detriment when a firm is not acting with appropriate levels of care.

Vulnerability may come in a variety of ways, it may be permanent, temporary or sporadic in nature,  many of those who are in a vulnerable situation may not define themselves as such.

When meeting a Customer face to face it may be apparent from body language and facial expressions to identify whether the prospective Customer requires additional information and guidance to enable them to make an informed decision.

When speaking with Customers over the telephone it may be more difficult to identify a Vulnerable Consumer because it is not possible to see body language and facial expressions etc.  It is critically important to listen carefully to all customers and to identify people who may be classed as a Vulnerable Consumer.  The tone of the voice may give some clues. Typical telephone characteristics may include:

Having to repeatedly explain a particular aspect of the service – either because the Customer is hard of hearing or simply does not understand what is being said.

Where the Customer provides an answer or comment which is inconsistent with the telephone discussion or which indicate they have not understood the information which has been provided.

Where the Customer admits that they do not understand or that they require the assistance of somebody else in making a decision.

When dealing with a Customer electronically (via email / SMS or other Instant messaging facility) staff neither have the benefit of observing body language etc nor the ability to pick up from the tome of the conversation any potential areas for concern.   Typical characteristics here may include :

            Incomplete or repetitive statements / questions or comments;

Having to repeatedly explain or clarify a particular aspect;

Steps to consider when engaging with a Vulnerable Consumer

It should be noted that where someone is potentially regarded as vulnerable then this does not automatically mean that our products and services are unsuitable for them.   Once we believe that we may be engaging with a Vulnerable Consumer we should immediately make a record of the same and ensure we adhere to this policy.

When engaging with a Vulnerable Consumer we should:

Provide ample opportunities for the customer to ask questions about the information we have provided.

Ask if there is anybody with them who is able to assist them.

Ask them that they have understood the information that has been provided – do this repeatedly as appropriate.

Allow them a period of reflection before completing the transaction – offer to contact on another day if appropriate.

Where a member of staff thinks that the customer does not understand the service which is being offered to them we must not proceed with the transaction.  The Customer should be informed that we will write to them with further information about the product or services they are seeking.

Where a Customer provides information which indicates that (s)he does or may have some form of Vulnerability that may impact on his/her ability to make an informed decision, this should not lead to them being automatically denied access to the service being sought.  The Firm should review its processes to ensure that the Customer is treated fairly and a positive outcome achieved for the Customer.

Intermediaries Based in Scotland

“Travelling is easy from Scotland,” says Vash Naidoo. “While the issues we deal with are mostly the same as our English and Welsh colleagues, like most people, Scottish people want to see you and shake your hand. It gives a better impression if someone meets and sees you so it’s a bonus us being in Scotland.

“A Scottish base offers the potential for a lot of travel. As well as Glasgow and Edinburgh we can get to Aberdeen, Dumfries and even the Highlands. There are businesses all over and while Scotland isn’t as big as England, it can take 4 hours to get to some places.

“Everyone is going through same process with the FCA applications. A lot gets lost in translation if you don’t know how to look for things.”

Thanks to our Scottish compliance consultants, you can benefit from our support north of the border, too.

“The biggest benefit for someone who’s based in Scotland is no added cost of travel,” says Vash. “A lot of English consultants add travel and an overnight stay. With us, we don’t charge for travel as it’s a normal cost, 4 hours away max. I could probably fit it in sooner.

“Another consultant might be available tomorrow but not be available for the travel time. I’ve had a real sense of people wanting a person based in Scotland.”.  

Alison Owen, based in Tomintoul, on the Highlands’ “whisky trail” agrees. She covers compliance needs for firms in Inverness, Elgin, Aberdeen, Perth and beyond.

“Even though everyone in the UK is under the FCA, we can offer a more personalised approach than larger compliance companies. I tailor everything around the firm. No two are the same and we can appeal to smaller firms, too.

“We can save you money as you don’t necessarily need everything. If you phone me for a chat, I’ll want to know what you already do and have and, most importantly, what you need. This is the key and I can focus on supplying that rather than overwhelming you with a great wad of information you don’t need.”

While most things are the same, Scottish law around buying property is different. That’s just one more reason to have someone based north of the border to support your mortgage advisors. 

To get in touch with one of our Scottish team please click here or visit our website for more information at
www.compliance-scotland.co.uk