Compliance Digest - 15th March 2024

William Shakespeare wrote “Beware the Ides of March”.  I hope today is or has been drama free.  To help you navigate the regulatory landscape here is my weekly digest of news and issues facing our industry. A blog in six acts this week.  Et tu, Brute?

Feel free to share the blog within your organisation.

• Investing in outcomes: a regulatory approach to deliver for consumers, markets and competitiveness

• Consumer Duty Board Report

• The future of pensions: act today to plan for tomorrow

• FCA updates its position on cryptoasset Exchange Traded Notes for professional investors

• International AML-CTF Checklist

• Annual Client Reviews

Investing in outcomes: a regulatory approach to deliver for consumers, markets and competitiveness

In a speech by Nikhil Rathi, FCA Chief Executive, delivered at the Morgan Stanley European Financials Conference, the key points were:

• The FCA wants a deeper, more open relationship with investors, analysts, and the markets as a whole – particularly now that it has more freedom to tailor its rules to the UK’s markets.

• It will be pragmatic when looking at enforcement of the Consumer Duty, tackling breaches that pose the greatest risk of harm but looking favourably on firms that have made reasonable efforts to address concerns.

• The FCA is not a price regulator and will not stand in the way of well-run businesses making profits in the face of effective competition.

• In dealing with motor finance claims, the FCA has intervened to establish the facts and is aiming for earlier clarity than previous redress events.  The more quickly and comprehensively firms cooperate with requests for data, the sooner the FCA can conclude its work.

• Firms and their investors need honest conversations about the balance between short-term shareholder returns and long-term investment to ensure medium-term competitiveness.

Once again, delivery of the Consumer Duty has been placed at the centre of communications by the FCA, no matter the audience. 

Consumer Duty Board Report

The first Consumer Duty report to be presented to the Board is due in July.  The report’s purpose is to review and approve the work your firm is doing to meet its obligations.  It will need to be completed annually and should consider the following:

• Details of the firm’s monitoring: This should form the basis of the assessment and confirm if you are delivering outcomes in line with the duty.  It needs to identify poor outcomes and if any group of customers is faring worse than others, for example, clients with vulnerable characteristics.  If the outcomes identified are not as expected or at odds with the regulations, you will need to complete a root cause analysis.

• Risks and issues: Your report should detail any actions you have taken throughout the year to address risks and issues.

• Future plans: The report should also be forward looking. It must detail your business plans for the forthcoming year and demonstrate how they align with the duty.

• Some of the key questions to come out of recent FCA surveys and information requests include:

• How many vulnerable customers do you have?

• How many clients are due an ongoing suitability of advice review as part of the service you provide, how many received that review and how many paid for ongoing advice but didn’t receive a refund if the review didn’t happen?

• Have all relevant clients received an ex-post cost and charges disclosure within the past 12 months?

• What percentage of files were reviewed by your risk and compliance experts in the last 12 months?

These should be included in the Consumer Duty Board Report.

The future of pensions: act today to plan for tomorrow

Nikhil Rathi also delivered a speech at the JP Morgan Pensions and Savings Symposium.  The Key points were:

• We should recognise auto-enrolment for the success it has been, but significant gaps and inadequacies remain.

• We should challenge ourselves to ask whether our products will deliver the value and returns needed for an adequate retirement.

• Pensions dashboards will make it easier to track down disparate savings pots, seek advice and make informed decisions to plan for retirement.

• Regulators, consumers and firms can act today to improve outcomes without waiting for a perfect future solution.

Towards the end of the speech, Mr Rathi covered the advice guidance boundary review.  He said that firms need to overcome their unwillingness to offer support to people for fear of being too close to the advice guidance boundary.  Rathi discussed the FCA’s advice guidance boundary review and said firms will need to manage risk rather than eliminate it when offering support.  He said: “Too few people seek financial advice, so we need new mechanisms to ensure consumers have the support they need.

The advice guidance boundary has been an issue for firms for a number of years.  The key is the perception of your client.  Does your client perceive that they are receiving advice from the language you are using.

FCA updates its position on cryptoasset Exchange Traded Notes for professional investors

In a news release, the FCA has stated that it  will not object to requests from Recognised Investment Exchanges (RIEs) to create a UK listed market segment for cryptoasset-backed Exchange Traded Notes (cETNs).  These products would be available for professional investors, such as investment firms and credit institutions authorised or regulated to operate in financial markets only.

The FCA does not envisage that cETNs would be made available to retail investors, or elective professional investors.

International AML-CTF Checklist

LexisNexis has created an AML-CTF checklist which, whilst having an international focus, could serve as a useful aide-memoire when reviewing the AML-CTF policies and procedures within your firm.

Annual Client Reviews

The final act this week concerns client servicing and annual client reviews, and dovetails with the earlier comments about the Consumer Duty Board Report. 

Does your client agreement provide for regular reviews, be they half-yearly or annually dependent upon your client proposition.  If so, are you delivering them and are you able to evidence delivery.  Did your clients get an annual (or half-yearly) update and review in return for paying an annual fee?  Was that fee justified and fair?  If not, how are you going to treat the fees received for no service.

Have you assessed if any of your clients no longer require an annual review and have you informed them and stopped taking annual fees.

These questions relate to Consumer Duty and how you deliver the four FCA outcomes.

Ian Ashleigh