TEST QUESTION

Firms In giving the Appropriate risk warnings to clients accessing their pensions, are required to give risk warnings. Which of the following is not included in Cobs 19?

A Whether the client has shopped around

B That legislation may change in the future

C The impact of means tested benefits

D. Investments scams

Answer:  B That legislation may change in the future

A bad reference is a career killer

Bad references in FCA regulated biz

Why you should use IFAC to provide references on departing employees.

IN Hicks vs Sense, the Claimant was an IFAC employed by Sense Network Ltd.  In 2013, the Claimant was required to seek pre-approval from Sense Network’s case review team, before giving certain advice or transacting final sales.  But claimant went on regardless, arranging, without advising.  Sense Network suspended him for non-compliance.  When he returned to work the claimant did it again.  This time Sense terminated him, and his reference was, understandably, not good.

Thereafter, the Claimant was unable to secure work as a financial advisor with other firms, two of which had requested a reference from Sense Network.  Sense explained in the reference that on the basis of that investigation, and “in spite of the explanations offered… it was reasonable to conclude that he had knowingly and deliberately circumvented the agreed process”.

So the case went to the High Court, and the Claimant argued that the reference was “a negligent misstatement, was deliberately negatively misleading, and had been written in bad faith.”  

The case rested on how much diligence and care should be taken when writing references.  Under Senior Managers Regime, due to come in at the end of next year, you will be forced to write a reference for the first time for all RIs and staff in regulated positions, including those who may NOT be on the FCA register.  The claimant lost, because the references were valid, backed up by KPIs.  But Sense probably wished they had never bothered to write anything, because it just landed them in an expensive claim they were forced to defend.

What can employers learn from this case?

• A bad reference is a career killer for employees.
• “Regulatory references” must include information about “disciplinary action” – FCA rule.
• Keep the KPIs in order to back up  your statements if challenged later. (Use BAT!)
• FCA have a whole chapter of SYS rules for regulatory references
• Get the leaver to agree the reference on leaving…..difficult to do this sometimes, but give it some thought.  A bad reference is a career killer under SMR, which really makes this a difficult process. 
• If you don’t have the KPIs you will be walking a tightrope between breaching the FCA rules or get sued in the courts.   In IFACs experience, this has led to many firms deciding to NOT provide a reference.  But of course you could be held liable to the departing employee if you finish their career by not supplying a reference!  
• Take advice from IFAC.  It is what you pay us for.  Templates are available on the BAT document library.
• This is becoming an increasingly problematic area, with significant legal risk.  
• IFAC will provide the references for you – pass the risk to your compliance manager!

Almost unbelievably Sense has also been involved in another High Court case this month. 

This time in Anderson and others v Sense Network Ltd.

Andersson was an AR and went off running a non reg ponzi scheme claiming they were regulated by Sense etc.

Should Sense pay for the client losses?

After all, ARs are the responsibility of the principal firm.

The High Court (Jacobs J) considered whether THE principal (Sense) was liable for losses suffered by the claimants that were a result of its appointed representative operating a fraudulent Ponzi scheme.

The claimants alleged that Sense was liable for their losses. 

But the work was outside the parameters of the compliance manual, and the judge dismissed the claim here.

This sort of case comes up at least every five years.  Burns Anderson had AR firms selling time-shares and had to face the courts to escape the claim for the losses.  ARs can and do run off piste, and you need to take care, if employing them, to carefully craft the agreement to cut out liability for non-reg business.   IFAC have model agreements on the BAT document library.