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.