IDD Changes from October 2018

FCA has revised their application process, once again stepping further into the field of complexity making professional advice on a new IFA FCA application effectively mandatory.  The new forms include a confirmation on CPD.

This requirement has also been picked up by providers when firms request a new agency.  

All firms and individuals doing general or term assurance work now need to comply with these new T&C rules.

Here is the detailed text

Please confirm your firm will meet the new CPD requirement set out in SYSC 28.2 (you will need to view the Handbook as at 01/10/18).

• minimum of 15 hours of CPD per year for every staff that sell, advise on and transact insurance contracts for all types of insurance customers
• Recording details of when and the types of CPD undertaken 

https://www.handbook.fca.org.uk/handbook/SYSC/28/2.html?date=2018-10-03&timeline=True

you need to ensure that your CPD replicates this demand, and you must update BAT to keep in line with this requirement.

We will be checking this data on individual audits.

So perhaps indicate for “protection only advisers” it MUST be on BAT, and this will be checked quarterly

For IFAs, it will be reviewed at Audits?

BAT changes

I have changed it so now “Managers” are able to see the entire new business book.

There are several levels of BAT user – one for advisers, and another for directors and so on.  A recent FCA enquiry to one firm queried whether individual RIs had access to the required information that they need to see.  Of course they do within the BAT conventional set up, but we take regular enquiries from firms seeking to restrict views of some users in unique ways.  This should be treated with great care, within IFAC, because of the risk of falling on the wrong side of FCA minimum standards as defined above.  Restricting access for a junior adviser may be bad for your health.

Two articles caught my eye in last week’s Sunday Times.

They were alongside each other – one from an MP demanding more fines on banks for AML failures.

The other was a barrister who sued Natwest for wrongly reporting his housebuying as suspicious activity. 

You cannot win!

Compliance officials at Natwest have learnt a useful lesson: when purporting to shop a customer to the authorities, check first on whether he is an experienced litigator who might fight back.  The one they shopped was David Lonsdale, a London-based commercial barrister of 30 years’ standing.

David has won a court ruling that forced the bank to explain why it had named him in a money laundering suspicious activity report.  He told a High Court judge that being reported by his bank to the National Crime Agency was “the most bewildering episode of my life”.

In March last year, Natwest officials reported his banking affairs to the agency and it has now emerged that Mr Lonsdale, who also owns a public house and several other properties in London, was granted the right to see those files.

Banks are required under legislation covering the proceeds of crime and anti-terrorism to make suspicious activity reports to the NCA and other agencies. In its guidance, the agency says that the reports provide “valuable information of potential criminality”.  

In March 2017, Natwest officials froze one of Mr Lonsdale’s seven accounts with the bank for eight days while it made a report to the NCA.  Then Natwest closed the accounts.  If you keep your ear to the ground in business, and follow these newsletters, you’ll find this is quite common thing to do.

Mr Lonsdale sued Natwest, claiming breach of contract, breach of data protection legislation and defamation. As part of those proceedings, he said that he wanted access to the reports made to the NCA. Natwest asked the court to strike out his request.

In a decision, Karen Steyn, QC, sitting as a deputy High Court judge, backed Mr Lonsdale.

If it was easy then monkeys would be doing your job.  Telling Mr Lonsdale about the NCA report would amount to “tipping-off” argued the NatWest – leaving them open to charges that they had alerted a potential offender of an investigation. 

What happens next is unknown, because to have your bank accounts closed is potentially catastrophic, so it is open to Mr Lonsdale to sue for that.

https://www.youtube.com/watch?v=onTEUUw6sLI

Watch charlie being interviewed here at the Mortgage Expo.

https://youtu.be/JuaidthBKrQ

Criteria Hub

https://www.criteriahub.co.uk/search/browse/residential/lenders

Please see attached fourth quarter Investment Review.

access to members only

It is not difficult to find reasons for the recent asset price volatility,which I expect to continue

The key conclusions/recommendations within the report remain much the same

• Developed government bond prices still remain vulnerable in price terms and total returns are likely to be negative this year.Apart form the direct bond effect,remember also the use of related yields in various asset allocation "models",which may be giving misleading asset allocation pointers.Understand the models used.
• Explore other fixed interest opportunities if need some holdings in this space,but watch liquidity,dealing spreads,credit quality etc.ETF's in more exotic fixed interest areas could be vulnerable in periods of market stress.
• Use alternative income plays.These are currently displaying their low correlation with mainstream asset classes,some showing price gains over the last fortnight for example,while  mainstream equities and bonds tanked.
• Selective equity exposure with a value bias over growth.Within the UK,this will include telecomms,utilities,pharmaceuticals and certain financials. 
• Japan remains my favoured overweight overseas equity market for relative performance.
• Property deserves a place.The very recent FCA consultation paper on property unit trusts,reinforces my preference for investment trusts. 
• If possible,hold more cash than your usual allocation,including an element of US dollar.
  
• Although the recent spike in the VIX,to over 20,has made hedging using conventional options,rather expensive,infinite turbo puts may still  be used against the FTSE and S&P for example,despite recent price gains..

DB suitability

DB pensions are an unusual thing, in that people often refer to guaranteed benefits and low risk environments, when neither of these are necessarily accurate, particularly when you look at some of the scheme details.

Nonetheless, the regulators position could not be clearer.

The FCA's guidance continues to be that firms should start by assuming that the transfer is not suitable.

Interestingly, in CP17/16, the FCA proposed replacing the existing guidance that an adviser should start from the assumption that a transfer will be unsuitable (the 'starting assumption').  But this proposed change to the starting point has been dropped.  Instead, they proposed that this should be replaced with a statement in the Handbook that advisers should have regard to the likelihood that, for most people, retaining safeguarded benefits is likely be in their best interests.

We suggest you add that line to your SR letters.  “For most people, retaining safeguarded benefits is likely be in their best interests.”

The FCA explained that an assessment of suitability should be completed on a case-by-case basis from a neutral starting position. The adviser should be able to demonstrate that the transfer is in the best interests of the client. And like with other SR reports – if you cannot positively prove best interests, then the file will finally be marked unsuitable. 

In most cases, DB pensions (and other pensions with safeguarded benefits) give valuable benefits which for many, are best being kept  You get certainty, a risk-free income, and inflation protection.  But there are often circumstances where a transfer of these rights is in the best interests of the client.

A firm should, however, only make a recommendation to transfer, if it can clearly demonstrate with evidence and robust analysis that it is suitable and in the best interest of the client.  So you are back to positive proof again.

In undertaking the analysis, new rules affecting Pension Transfer advice took effect from the start of this month - 1st October 2018, replacing the old Transfer Value Analysis (TVAS) with the new Appropriate Pension Transfer Analysis (APTA) that includes a prescribed Transfer Value Comparator (TVC).

Appropriate Pension Transfer Analysis (APTA) - The New Rules

The Appropriate Pension Transfer Analysis carried out by a firm should demonstrate the suitability of the recommendation and in conducting the analysis, just like any other personal recommendation, the firm should take into account the client's:

• Objectives and intentions for accessing pension benefits.
• Attitude to and understanding of the risk of giving up the guarantees and benefits of the ceding scheme.
• Attitude to and understanding of investment risk.
• Capacity for loss.
• Realistic retirement income needs and an analysis of how those needs could be achieved. The analysis should include the part that the DB scheme would play in achieving their income needs and the consequent impact that a transfer would have on meeting those needs. It is also important to show any alternative ways of achieving the client's objectives instead of the transfer.

The FCA have not been overly prescriptive in terms of providing a detailed framework for the APTA. Although they have provided a level of guidance, the adviser still has flexibility to complete the analysis in a way which fits their client's individual circumstances.

The APTA should however include:

• An assessment of the client's outgoings and potential income needs throughout retirement:

It is therefore important that your file can show that the client and their spouse/partner will be able to maintain sufficient income for life, taking into account inflation. This analysis should demonstrate how both the ceding and receiving schemes can be used to meet those income needs, in addition to any other means available to the client and therefore involves the use of cash flow modelling.

When conducting the analysis, consideration also needs to be given to the level of income the client needs to meet their essential living expenses and to ensuring that these are covered as far as possible with secure income.

Software (such as cashflow modelling) is encouraged and IFAC are doing work on this to introduce this to BAT in due course. 

• A Transfer Value Comparator (TVC) -  is mandatory, is in a heavily prescribed format and must not be amended.

The TVC aims to show the client the 'value' of the benefits they are giving up - by showing the estimated value needed to replace the promised benefits from the client's DB scheme, assuming the investment returns are consistent with the client's attitude to risk and that they purchase an annuity on the open market.

This provides information to the client in a very user friendly graphical format and shows the client instantly how good the DB scheme is in terms of value for money and demonstrates how a transfer to a Defined Contribution (DC) pension is unlikely to be able to produce the same benefits as the scheme.  

Whilst the TVC is mandatory and is in a heavily prescribed format, the TVC is only part of the APTA and the FCA expects firms to fully account for client's personal circumstances when undertaking the APTA.

Don’t amend it!

The new APTA rules are of course an improvement from the previous heavy handed illustrations, but the key risk remains of confusing the client with mass of information that is hard to digest, and the skill and payment reward lies in being able to highlight the key points that are relevant to the client as documented in the fact find.  

After you’ve got over all this you need to face up to your PII insurer, and with that comes mandatory file checks – either with IFAC or any other external firm.  Without it, PII is unlikely to renew without hiccup.

FOS

The FCA has announced plans for an increase in the current FOS compensation cap. Currently standing at £150,000, the changes would see the limit increase to £350,000, an increase of 133%. It is also proposed that the limit will further increase automatically each year in line with inflation.

In an attempt to "ensure more complainants receive fair compensation when the ombudsman service upholds their complaint against a financial services firm", the FCA has issued a consultation which could see the current FOS binding award limit increase from £150,000 to £350,000.

• £350,000 for new complaints (that is, complaints about acts or omissions by firms on or after 1 April 2019).
  
• £160,000 for all other complaints (that is, complaints about acts or omissions by firms before 1 April 2019, and which are referred to the FOS after that date). This award limit reflects changes in inflation since the £150,000 limit was put in place in 2012.

The FCA have also confirmed that the two new award limits will be automatically adjusted going forward from 1 April 2020, to keep in line with inflation.   

 More importantly the FCA also confirmed that it will extend access to the FOS to larger SMEs. Currently individual consumers, small charities and trusts, and ‘micro enterprises’ are eligible – meaning  annual turnover / a balance sheet of less than €2m and fewer than 10 employees.  But the new rules will extend this to  firms with an annual turnover of below £6.5m and fewer than 50 employees from 1 April 2019.

The FOS jurisdiction used to stand for quick, informal justice and rough justice, and in IFAC’s opinion generally it was effective – certainly for lower value cases, and excepting a few higher value cases, we just paid up when asked to do so.  

The new jurisdiction will increase the number of FOS cases referred to the High Court.  Use the HIGH COURT to appeal the decision, it only costs £154.  https://www.gov.uk/government/publications/form-n461-judicial-review-claim-form-administrative-court use IFAC!

The irony is that this will weaken the FOS, and set precedents in the courts.  FOS is duty bound to comply with Courts on a range of issues, not least the statute of limitations!  For small value cases they continue to issue irrational decisions, but the point is that relatively speaking they are low value cases.