Compliance Digest: 6th September 2024
August has turned into September, meaning that many of us have put our suitcases away for the time being and sharpened our pencils, although physically writing on a computer screen is not usually recommended. Children have returned to school, and in some cases are experiencing school for the first time in reception classes. Some of us have welcomed the return of association football with all the joy and frustration it brings.
Following the Gallagher brothers’ decision to stop burying the hatchet in each other’s heads and plan a reunion tour, the Competition and Markets Authority has opened an investigation into Ticketmaster over the sale of Oasis tickets, looking at whether it may have breached consumer protection law. Those who know about such things will know that the real talented Gallagher was named Rory and came from Cork in the Republic of Ireland.
Financial services regulation continues unabated, and the FCA has been busy this week.
A targeted and outcomes-based approach to tackling financial crime
FCA announces work into pure protection market
Oversight of ARs improving but there is more to do
The PSR proposes a reduction in APP reimbursement maximum to £85,000
The Upper Tribunal backs the FCA refusal of an authorisation application on fit and proper grounds
The FCA has published its Annual Report and Accounts
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A targeted and outcomes-based approach to tackling financial crime
In a speech by Sarah Pritchard, FCA executive director for both markets and international at the Financial Crime Summit in London she highlighted:
Fighting financial crime is a priority for the FCA and a key commitment in its 3-year strategy 2022 to 2025.
Consistent with the national economic crime plan and fraud strategy, the FCA’s work is based on a partnership approach.
Financial crime is not just an issue for the financial sector, but for other sectors too, sharing data and intelligence is a vital tool in staying one step ahead.
The speech highlights the activity the FCA took in 2023 to fight financial crime and looks at the preventative measures and strategic interventions the FCA is taking to stop financial crime. The FCA expects firms to have robust systems and controls in place to reduce the risk that they are used to facilitate financial crime. This applies to both authorised and regulated forms and those registered under Annex 1 of the Money Laundering Regulations.
The FCA expects the industry to innovate and take a data-led approach to counter financial crime and stay ahead of the criminals. We have recently seen that PwC was fined £15m for failing to alert the FCA about suspected fraudulent activity.
The FCA requires firms to have a strategy with robust systems and controls to prevent financial crime. Compliance Matters UK Limited can help by testing your systems and controls and recommending how they might be improved. Click here to arrange a call with us.
FCA announces work into pure protection market
The FCA intends to launch a market study into how pure protection insurance products are sold following concerns that competition is not working well in the market. The study will be launched later in 2024/25.
Pure protection products are designed to help individuals and their families with their finances should the policyholder die or become unable to meet their financial commitments. Around £4 billion was paid out in claims in 2022. The products are mainly sold through intermediaries like independent financial advisers or mortgage brokers.
The FCA has concerns that the design of commission arrangements may not allow firms to deliver good outcomes to policyholders. It is also concerned that some products may be providing poor value, for example if the total premiums paid over a lifetime far exceed the maximum conceivable payout.
Whilst the FCA is not formally consulting on the Terms of Reference, it has asked for views on the intended scope of the market study by 11th October 2024 to PureProtectionMS@fca.org.uk.
Some intermediary firms focus on wealth creation with pensions, ISAs and GIAs, they can lose sight of protecting the creation of that wealth, particularly when clients are owner managers of small businesses. This is where firms should be recommending a package of protection products to cater for unexpected events.
Oversight of ARs improving but there is more to do
In a press release, the FCA has set out good practice and areas for improvement to help principal firms effectively monitor their Appointed Representatives (ARs). The findings follow a review of how principals are meeting its enhanced AR rules, introduced in December 2022. The analysis involved a telephone survey with 251 principals and in-depth assessments of documentation from 23 firms.
The review also found:
1 in 5 principals had not carried out a required self-assessment or annual review of their ARs.
Approximately half of principals were not regularly reviewing their AR agreements.
A third of principals were not using data or management information to keep tabs on whether ARs were acting within the scope of AR agreements.
Most firms had not changed their AR onboarding or termination procedures since the rules were introduced.
The results of the review can be read here. Examples of good practice were found to include:
Having a clear single document outlining any material deficiencies or concerns in the principal’s AR oversight, with an action plan to address any gaps in compliance.
Assessing the effectiveness of the firm’s arrangements for overseeing its ARs, and the adequacy of the firm’s controls and resources.
Reviewing the methods used to assess and verify the principal’s compliance with the requirements in the FCA rules.
Using a broad range of management information. For example, assessing staff turnover, changes to revenue and complaints rates, non-regulated activity and monitoring and oversight activity.
Using a RAG (red-amber-green) rating system to group the above potential gaps in compliance and prioritise accordingly. This included a clear timeline showing when the gaps would be addressed.
Assessing the risk of harm to consumers or market integrity arising from activities or businesses.
Discussing this document at Board level and clearly dated and signed off by the board at least once every 12 months.
The PSR proposes a reduction in the APP reimbursement maximum to £85,000
The Payment Services Regulator (PSR) is consulting urgently on a proposal to lower the maximum level of reimbursement for Faster Payments APP scam claims to £85,000. This is a significant reduction, bringing it down from the previously agreed £415,000 (which was the FOS maximum at the time the figure was set) to the FSCS maximum.
The PSR has had feedback on the risks and impacts of the larger maximum level, not least the prudential concerns of some smaller firms. It has decided that a reduction in the level will help effective implementation and thinks the new limit is in line with the PSR’s work on the incidence and impact of high-level scams. It says this figure should ensure that it and the industry can deliver timely and effective consumer protections which would address the vast majority of scams, while mitigating some of the concerns of firms.
The Consultation closes at lunchtime on 18 September and the PSR proposes to put the changes in place for the 7 October start of the new rules.
The PSR’s press release and the consultation CP24/11 are in the links.
The Upper Tribunal backs the FCA refusal of an authorisation application on fit and proper grounds
The law firm Womble Bond Dickinson has summarised the Upper Tribunal decision that supported the FCA refused of the application of Ashraf Wealth Management Limited to carry out regulated activities on the basis that Mr Ashraf had not demonstrated that he was a ‘fit and proper’ person. The Upper Tribunal decision can be read here.
It is important that applications for authorisation by the FCA demonstrate that the firm can meet the Regulators threshold condition and that Senior Managers of the firm a fit and proper to undertake the Senior Management Functions they have applied for. Compliance Matters UK Limited can support a firm’s application for authorisation.
The FCA has published its Annual Report and Accounts
The FCA has published its Annual Report and Accounts for 2023-24, with an accompanying press release. The highlights include:
An improvement in its authorisations service, enabling new financial services firms with the ability to meet regulatory standards to get off the ground;
Intervening to stop harm to consumers more quickly;
Improved fair complaint resolution and compensation;
Strong action to tackle financial crime; and
Protecting consumers through the introduction of the Consumer Duty.
As a reminder, the FCA has a strategic objective to ensure that the markets it regulates function well. This is supported by three operational objectives:
1. Secure an appropriate degree of protection for consumers
2. Protect and enhance the integrity of the UK financial system
3. Promote effective competition in the interests of consumers
And a secondary objective to facilitate the international competitiveness and growth of the UK economy in the medium to long term.
How can we help?
It is important that you have robust policies and procedures to ensure your firm delivers industry best practice and good consumer outcomes. If you would like Compliance Matters UK Limited to review your compliance systems and controls, schedule a free, no-obligation consultancy call with us today.
To learn more about how Compliance Matters UK Limited can support your firm, click here.
To learn more about our T&C Support, including access to the Skillcast platform, click here.
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