Compliance Digest: 24th November 2023
Each week I will summarise a number of articles from my various industry news feeds that are of interest to our section of the industry and review the implications for Amber River in East Anglia.
This week we cover:
Learning from the last 30 years to face the next
Five individuals banned and fined for causing losses to pension customers
Queen’s Speech: Financial services and markets
Plans to promote investing in illiquid assets into DC pension schemes
Learning from the last 30 years to face the next
FCA Chief Executive Nikhil Rathi delivered a speech on 5 May 2022 to the CISI 30th Anniversary Dinner that covered the following themes
Resilience to the economic and geopolitical disruptions of today.
How digital skills will be integrated in all future financial services education as the boundaries become blurred between tech and the industry.
How the FCA is working on maximising the benefits to consumers of tech, while mitigating the risks.
The need a boost to financial education as children are beginning to participate in cryptoassets.
The speech covered a number of topics, including; transformation and digital challenges, competitiveness and markets, ESG and diversity and inclusion.
A transcript of the speech can be read here.
Implications for Amber River
The FCA uses speeches to communicate some of its thinking to the industry and the messages regarding transformation technology and digitisation are themes that the FCA have returned to frequently over the past few years. Environmental, social and governance (ESG) is a hot topic and we should think about the social and governance aspects of the acronym. Diversity and inclusion are buzzwords across the whole of society and we need to be mindful of them here too.
Five individuals banned and fined for causing losses to pension customers
The FCA has prohibited five directors of financial advice firms from working in financial services and fined them over £1 million, after they caused significant losses to pension customers. The decisions follow an extensive 300-page judgement issued by the Upper Tribunal in which the five directors unsuccessfully challenged the FCA’s decisions.
The Tribunal found Andrew Page, Thomas Ward, Aiden Henderson, Robert Ward and Tristan Freer had failed to act with integrity having either acted dishonestly or recklessly. Each had been directors at failed financial advice firms (Financial Page Ltd, Henderson Carter Associates Limited, and Bank House Investment Management Limited) who provided unsuitable advice to over 2,000 customers causing them to place their pensions in high-risk financial products in self-invested personal pensions in which Hennessy Jones, an unauthorised firm, had a significant financial interest. These customers had been referred to them by Hennessy Jones which was also involved in designing the pension advice process used by these firms.
This scheme caused significant losses of over £50 million to over 2,000 consumers who have been compensated now by the Financial Services Compensation Scheme. As well as the negative impact on consumers, this also affected other financial services firms which have to contribute to the costs of the FSCS.
The press release includes a link to the Upper Tribunal’s judgement.
Implications for Amber River
Whilst I am aware that we do not engage with unauthorised firms and recommend unnecessarily high-risk financial products to our clients, we must be mindful of suitability and attitude to risk when constructing portfolios for our clients.
Queen’s Speech: Financial services and markets bill
This bill will replace EU financial regulation with a UK one, reform the rules that currently regulate UK capital markets in order to promote investment and ensure people across the UK "continue to be able to access their own cash with ease".
It will also offer better protection for those investing in financial products against scams.
The government has announced plans to revoke EU financial services regulations and replace it with new rules which are "designed for the UK".
In the Queen's Speech, Prince Charles announced that the government would bring in new legislation to "strengthen" the UK's financial services industry and ensure it acts "in the interest of all people and communities".
This will be achieved through a financial services and markets bill which will be introduced the coming year.
The main elements of the Bill are:
revoking retained EU law on financial services and replacing it with an approach to regulation that is designed for the UK. This includes the Solvency II legislation, which the government has committed to reform;
updating the objectives of the financial services regulators to ensure a greater focus on growth and international competitiveness;
reforming the rules that regulate the UK’s capital markets to promote investment;
introducing additional protections for those investing or using financial products, to make it safer and support the victims of scams; and
ensuring that people across the UK continue to be able to access their own cash with ease.
The government has said the main benefits of the bill would consist of "cutting red tape" to make the UK a more attractive place to invest and do business while maintaining high standards.
Implications for Amber River
Whilst this will not result in wholesale removal of MiFID II, IDD and the other EU directives and regulation, consideration will be given to how to apply the directives and regulations to the UK without diluting our equivalence status with the EU which remains an important market for our financial services exports.
Plans to promote investing illiquid assets into DC pension schemes
A DWP consultation regarding the facilitation of investment of illiquid assets by DC pension schemes closed on 11th May with mixed reactions. Consultants LCP warned in its response that the plans may not improve member engagement with the scheme’s investment strategy and that the proposals — despite being well-intentioned — could fail in their goal to drive more investment in illiquid assets and risk increasing scheme costs without improving member outcomes.
Conversely, JLT Employee Benefits consider that an allocation to professionally managed illiquid assets could boost DC pensions by 10% at retirement. Links to the LCP and JLT reactions are in the hyperlinks.
Implications for Amber River
When constructing portfolios for our clients, we need to take into consideration their attitude to risk and the time horizon until they require access to their pension portfolio. In many cases these assets may not be suitable for individual clients and should be used with care.
