Regulation Matters Issue 150

Regulation Matters Issue 150

Issue 150 May 2020

Regulation Matters Welcome to this edition of Regulation Matters covering regulatory updates which impact financial advisers. If you have any questions about the subject matters covered, please call our Compliance Helpdesk on 0113 512 0400 option 2 or email [email protected] .

We are here to help.

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IN THIS ISSUE

Who is it relevant to? Summary

Action recommended / for your information?

Subject

CORONAVIRUS – FCA REGULATORY UPDATES.

All firms

A round up of the key regulatory communications relevant to intermediaries in the last 3 months. The FSCS has finalised its levies for 2020/21 which will be reflected in the next round of regulatory fee invoices. Complaints Commissioner expresses concern about the FCA’s work on DB transfers and the PII market.

Action Recommended

FSCS LEVIES

All firms

For your information

PENSION TRANSFERS AND PII MARKET

Pension Transfer Specialists

For your information

REMINDER OF KEY REGULATION MATTERS

All firms

Actions recommended in last month’s issue of Regulation Matters (issue 149).

For your information

REGULATORY MATTERS ON THE HORIZON

All firms

Overview of FCA planned activity.

For your information

DO YOU NEED FURTHER HELP OR SUPPORT? If you have any questions regarding a compliance matter, give our Compliance Helpdesk a call on 0113 512 0400 option 2 or email [email protected]. If you would like more details about any of our support services, please speak to your Account Manager. Alternatively, you can speak to your Regulatory Consultant if you have subscribed to a service which includes access to one.

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Coronavirus – FCA Regulatory Updates AT A GLANCE

In last month’s edition of Regulation Matters (issue 149 – April 2020), we explained that the FCA has delayed the publication of a range of papers, many of which were due before the end of June. Under normal circumstances we would be informing you about the key impacts and recommended actions resulting from these. As the primary focus of regulatory communications over the past 3 months has been the issue of a range of FCA COVID-19 updates, in this issue we are providing a high level summary of the matters relevant to the intermediary sector, i.e. the story so far.

Want to know more? CLICK HERE (or turn to page 7) for a more detailed summary, including recommended actions.

FSCS Levies AT A GLANCE

On 21st May 2020, the FSCS published a press release announcing its final levy for 2020/21. The FSCS will levy firms £649 million, which includes management expenses of £74.7 million. The figure is £14 million more than the indicative levy that the FSCS forecast in its plan and budget for 2020/21.

Want to know more? CLICK HERE (or turn to page 10) for a more detailed summary.

Pension Transfers & PII Market AT A GLANCE

On 6th May 2020, the Office of the Complaints Commissioner published the final report of the Financial Regulators Complaints Commissioner (FRCC) in respect of a complaint against the FCA, which arose when a firm was denied PII cover for DB pension transfer business.

Want to know more? CLICK HERE (or turn to page 11) for a more detailed summary.

DO YOU NEED FURTHER HELP OR SUPPORT? If you have any questions regarding a compliance matter, give our Compliance Helpdesk a call on 0113 512 0400 option 2 or email [email protected]. If you would like more details about any of our support services, please speak to your Account Manager. Alternatively, you can speak to your Regulatory Consultant if you have subscribed to a service which includes access to one.

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Reminder of key regulatory matters Below is a useful reminder of key regulatory matters affecting financial adviser firms including actions recommended in last month’s issue of Regulation Matters (issue 149) .

Subject

Recommended Action

Further Information

1

FCA Business Plan 2020/21

Ensure that your client’s needs (new and existing) are at the heart of everything you do in pursuit of a good client outcome, particularly those who are vulnerable/potentially vulnerable. Given the FCA’s intention to switch more of their focus to smaller firms, ensure you have considered the areas relevant to your business model against current process, practices and controls. Ensure your MI capabilities and client files are complete and in good order given the FCA’s ongoing suitability review work, particularly their focus on the pension decumulation and DB transfer market. Ensure you have implemented the relevant aspects of the Senior Managers regime, but also ensure that you are aware of your future obligations and related actions in terms of the Certification regime and Conduct Rules training for relevant employees.

The FCA’s Business Plan is available on their website HERE . To discuss a specific course of action for your firm please contact your TenetSelect Regulatory Consultant in the first instance.

2

Regulatory Fees & Levies

Consider making use of the updated fees calculator on the FCA website so you can plan accordingly.

The calculator can be accessed HERE .

3

FOS Complaints – Scams & Fraud

Review the ‘information for businesses’ page and related case studies on the FOS website. Consider adding a link to the ‘information for consumer’s page’ on your website.

The webpages can be accessed HERE .

DO YOU NEED FURTHER HELP OR SUPPORT? If you have any questions regarding a compliance matter, give our Compliance Helpdesk a call on 0113 512 0400 option 2 or email [email protected]. If you would like more details about any of our support services, please speak to your Account Manager. Alternatively, you can speak to your Regulatory Consultant if you have subscribed to a service which includes access to one.

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Regulatory Matters on the Horizon

It’s an ever-changing market with a constant stream of new and updated regulation for financial advisers to worry about. We have provided a brief overview of the FCA’s planned activity as we currently understand it which has currently been deferred/delayed due to COVID-19. Below we have highlighted the current status of relevant FCA publications as we understand it which is under constant review and subject to change. Rest assured, as part of our service we will keep you informed and provide guidance to help you remain compliant.

Delayed Implementation of FCA Rules

Subject

Publication Type Expected Date Intended Audience

1

Pension Transfer Specialist Qualifications.

Policy Statement – PS20/03

1st October 2021 PTS’s who also need to attain a QCF level 4 investment qualification. 1st February 2021 Relevant to individuals and firms with an interest in pension drawdown,

2

Retirement Outcomes Review

Policy Statement – PS19/21

including those providing advice and information in this area.

3

Making Platform Transfers Simpler

Policy Statement PS19/29

1st February 2021 Investment advisers with clients utilising Platform services.

Delayed FCA Consultation Response Dates

Subject

Publication Type Expected Date Intended Audience

1

Various Matters

Quarterly Consultation No. 27 Consultation Paper (CP19/32)

1st October 2020 All relevant sectors

2

Building Operational Resilience

1st October 2020 Enhanced scope SM&CR firms

DO YOU NEED FURTHER HELP OR SUPPORT? If you have any questions regarding a compliance matter, give our Compliance Helpdesk a call on 0113 512 0400 option 2 or email [email protected]. If you would like more details about any of our support services, please speak to your Account Manager. Alternatively, you can speak to your Regulatory Consultant if you have subscribed to a service which includes access to one.

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Other Delayed FCA Publications In the table below is a list of proposed publications which are likely to be of relevance to the retail financial advice sector either directly or indirectly. These were all due to be published before the end of June 2020 but are currently delayed pending updates from the FCA at an appropriate point. Regulatory Matters on the Horizon (cont.)

Subject

Publication Type

Expected Date

1 2

Mortgage Switching

Consultation Paper

TBC

Vulnerable Clients

Guidance & Research TBC

3

Options to Change the FCA Regulatory Framework

Ref: Duty of Care Feedback Statement

TBC

4 5 6 7

Consumer Credit Act (CCA) Review

TBC

TBC

General Insurance Pricing Remedies

Final Report & Consultation Paper

TBC

Investment Platforms Exit Fee Remedies

Consultation Paper

TBC

Value for Money

Consultation & Discussion Papers Key Findings – Multi- Firm Review

TBC

8

Sale & Advice of Equity Release

TBC

9

General Insurance

Value Measures Pilot

TBC

10 11 12 13

Intergenerational Differences

Feedback Statement

TBC

Pensions Transfer Advice: Contingent Charging and other proposed remedies

Policy Statement

TBC

Assessing Suitability Review 2

Multi-Firm Review TBC

Prohibiting the Sale of Investment Products to Retail Clients that Reference Cryptoassets

Policy Statement

TBC

DO YOU NEED FURTHER HELP OR SUPPORT? If you have any questions regarding a compliance matter, give our Compliance Helpdesk a call on 0113 512 0400 option 2 or email [email protected]. If you would like more details about any of our support services, please speak to your Account Manager. Alternatively, you can speak to your Regulatory Consultant if you have subscribed to a service which includes access to one.

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Coronavirus – FCA Regulatory Updates

PII for Financial Advisers On the 21st of April, the FCA updated its guidance for firms setting out their position in terms of the impact the current crisis is having on PII for Financial Advisers. They recognise that: n T he PII market is evolving n S ome firms may be concerned about their ability to renew PII in a timely manner n T he operational resilience of some firms will be impacted as a result.

At the time of writing, we have communicated no less than 16 regulatory updates as a result of the FCA’s response and guidance for firms due to the Pandemic. Below we have provided a high level summary of the matters covered so far. The full detail of each communication can be viewed on our dedicated extranet hub. Electronic Signatures On 20th April 2020, the FCA issued an update, providing guidance on its approach to the use of both electronic and ‘wet-ink’ signatures on documents. The FCA will not comment on the legal validity of electronic signatures because it is a matter of law. However, FCA rules do not prevent firms from using electronic signatures in agreements. DB Pension Transfer Advisers On the 7th April 2020, the FCA issued guidance to pension providers and DB transfer advisers, noting that the pandemic may result in more consumers seeking advice about transferring a DB scheme. The FCA also reminds firms that the usual requirements for advisers continue to apply, including the starting point that a transfer is unlikely to be suitable. The expectation is that an adviser will only conclude that a transfer is suitable where it can be clearly demonstrated to be in the client’s best interests. ‘Dear CEO’ Letter – SME’s and Business Interruption Cover On the 15th April 2020, the FCA issued a ‘Dear CEO’ letter to insurers and brokers, dealing specifically with its expectations regarding the treatment of SMEs who hold business interruption insurance policies. While much of the letter sets out the FCA’s expectations of insurers, there are two key points for brokers: 1. When dealing with clients who have business interruption policies, brokers are expected to deliver clear, accurate and timely information to help those customers understand whether their particular policy provides cover; and, 2. In order to help clients in this situation, brokers will need to be familiar with the FCA’s expectations of insurers.

Financial Resources – Subordinated Loans

Firms will be aware that they must, at all times, maintain capital resources at least equal to the capital resource requirements in the FCA Handbook. Some firms have wondered if utilising the Government- backed Coronavirus Business Interruption Loan Scheme might help them to meet their capital resources requirement whereas others are concerned that doing so might have an adverse impact by creating a liability. In practice, because of the way that the FCA prescribes how financial resources are calculated, accepting a Government-backed Coronavirus Business Interruption Loan (‘CBIL’) from the scheme would not immediately increase or reduce a firm’s financial resources. However, paying interest on the loan in the future could reduce financial resources, where doing so creates or exacerbates losses. Longer term, reduced income due to the pandemic will put downward pressure on firms’ capital resources requirements. In the short term, unless the FCA takes action to ease its requirements, some firms might find that material losses which must be recognised in the period to which they relate, could cause their financial resources to fall below the required minimum when completing their RMAR. Where this occurs, a Subordinated Loan could be an option for some to help meet the firm’s capital resources obligation, provided the loan meets all of the FCA’s strict requirements.

DO YOU NEED FURTHER HELP OR SUPPORT? If you have any questions regarding a compliance matter, give our Compliance Helpdesk a call on 0113 512 0400 option 2 or email [email protected]. If you would like more details about any of our support services, please speak to your Account Manager. Alternatively, you can speak to your Regulatory Consultant if you have subscribed to a service which includes access to one.

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Coronavirus – FCA Regulatory Updates (cont.)

ID Requirements during Lockdown Despite the difficult times we find ourselves in, verifying clients identity remains a legal requirement under the Money Laundering Regulations 2017 (MLRs). Whilst the majority of firms tend to conduct these checks electronically, there are some occasions where this is not possible and instead paper based documents are used. Depending on the advice given and the product recommended, there is often a need to obtain copies of other information from the client such as income, expenditure or evidence of deposit. Given the current situation where many of you are having to adapt with how you interact with your clients, obtaining original documents will not always be possible. Where this is the case, technology should be used as long as information transmitted can be done in a secure manner. Regulatory Reporting On the 22nd April 2020, the FCA updated its guidance for firms to introduce some temporary measures, extending the deadlines for a range of regulatory returns by either one or two months. The FCA note that this only applies to firms who have a submission due date up to and including 30th June 2020. Furthermore, the extension only applies to the specific returns they have listed on their website, which in most cases are single elements of a firm’s broader regulatory return, (i.e. not the whole of your RMAR). Any other elements of your regulatory returns still need to be submitted in the usual timeframe. Qualifications On the 20th April 2020, the FCA updated its guidance to explain how firms can comply with the requirement to ensure that their employees, who are working towards the required qualifications for roles such as providing advice or being a pension transfer specialist, complete appropriate qualifications during the current crisis. Whilst firms still need to ensure that all employees have the skills, knowledge and expertise required to discharge their responsibilities, the FCA will not act against a firm (or accountable individual) that is unable to ensure an employee has attained an appropriate qualification within 48 months (of starting to carry on the relevant activity), because the relevant examinations were cancelled or postponed.

Essential Workers – Testing The Government has expanded coronavirus testing to include essential workers in order to help them to return to work should they test negative. On 24th April 2020, the FCA updated its guidance to help financial services firms identify those individuals who meet the Government’s definition of ‘essential workers’ and would qualify for the expanded Coronavirus testing scheme. The FCA reiterates that it expects a limited number of individuals in financial services firms to be classified as ‘essential workers’. It says that Chief Executives and senior management teams are best placed to judge which roles are ‘essential’, but the guidance provides useful guidance. Executing Legal Documents Tenet is committed to ensuring the business continuity of our group and its client’s flows seamlessly during these unprecedented times. One key element to avoiding business disruption is to facilitate the execution of commercial documents in a formal and timely, but safe, manner. Many documents can simply be signed electronically, or execution pages may be printed, signed and scanned in at home, but some will require that the signature is witnessed by another individual. A deed in particular must be in writing, signed and witnessed. Complaints Handling during Coronavirus On the 1st May 2020, the FCA published a statement clarifying their position on complaints handling during the current situation. The FCA has set out its guidance and expectations of firms under eight related subject headings. In particular, they expect firms to ensure that as much complaint handling as possible continues via home working where this can be done fairly and effectively. Firms are expected to prioritise: 1. Prompt payment to complainants who have been offered redress and accepted that offer 2. The prompt and fair resolution of complaints from: n C onsumers who are likely to be vulnerable to harm if their complaint is not resolved promptly and fairly, and; n M icro-enterprises and small businesses who are likely to face serious financial difficulties if their complaint is not resolved promptly and fairly. 3. Sending timely holding responses to those in 2 above where their complaints cannot be resolved promptly. The FCA acknowledges that where a firm cannot deliver these priorities via home working, a minimal onsite presence could be appropriate (subject to Social Distancing measures etc.)

DO YOU NEED FURTHER HELP OR SUPPORT? If you have any questions regarding a compliance matter, give our Compliance Helpdesk a call on 0113 512 0400 option 2 or email [email protected]. If you would like more details about any of our support services, please speak to your Account Manager. Alternatively, you can speak to your Regulatory Consultant if you have subscribed to a service which includes access to one.

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Coronavirus – FCA Regulatory Updates (cont.)

Senior Managers and Certification Regime (SMCR) On the 6th of May, the FCA published a ‘modification by consent’ extending the maximum period a firm can arrange cover for an absent senior manager without approval from the FCA, from 12 to 36 weeks in a consecutive 12 month period (known as the ’12 week rule’). The FCA is also allowing firms to allocate the prescribed responsibilities of an absent senior manager to the individual covering the role.

Insurance Customers with Temporary Financial Difficulties On the 14th May, the FCA published its finalised guidance for insurance and premium finance firms in terms of customers who are experiencing temporary financial difficulties (i.e. their ability to maintain insurance premiums) due to the pandemic (‘qualifying customers’). The guidance applies to non-investment insurance contracts (General Insurance & Pure Protection) and sets out the expectations of firms when considering the fair treatment of existing customers. The guidance builds on Principle 6 (due regard to the interests of customers/TCF) and the client best interest rules that underpin it. Whilst the guidance is primarily aimed at product providers and those offering instalment terms for the payment of general insurance contracts (premium finance), the key message from the FCA is that all firms in the distribution chain who are engaged by such customers, need to work together as necessary in pursuit of a good client outcome. Continuing Professional Development (CPD) – Carry Over On the 27th of May 2020, the FCA published a new webpage explaining that it will allow firms to defer an individuals uncompleted CPD hours to the next CPD year, but only in exceptional circumstances as a result of Coronavirus. Whilst the FCA is recognising that there could be exceptional circumstances where individuals may struggle to complete their minimum CPD requirements, they still expect that most individuals will be able to continue completing CPD while working from home or on furlough (such as through e-learning and other material from accredited bodies). The FCA also emphasises that it expects firms to demonstrate that relevant individuals remain competent to carry out their work and that effective and consistent CPD is an essential part of this. WHAT SHOULD FIRMS DO NOW? For those who may have missed, or would like to review the full detail of the updates again, please refer to our dedicated extranet hub via the following link (you need to be logged in first): https://extranet.tenetgroup.co.uk/news--views/ coronavirus-covid-19/covid-19-compliance

Information Security and Financial Crime On 6th May, the FCA issued updated guidance on its expectations of firms when balancing business continuity with the need to have adequate systems and controls in

place to manage risk in relation to: 1. Information/Cyber Security, and 2. Financial Crime.

Firms are reminded that cyber criminals are actively seeking to exploit vulnerabilities in IT systems as a result of the pandemic and that related financial crime/customer due diligence requirements need to continue, e.g. utilising electronic means as necessary. Note: firms should only furlough their MLRO as a last resort. Handling of Post and Paper Documents On the 13th of May 2020, the FCA published a statement on how firms should handle post and paper documents during the pandemic. In summary, the FCA expects ongoing compliance with relevant standards where post and paper-based processes (both incoming and outgoing) are in operation. Whilst they recognise that full compliance may be an issue for some as a result of current circumstances, where this is the case firms need to notify the FCA as soon as possible.

CLICK HERE to return to page 3.

DO YOU NEED FURTHER HELP OR SUPPORT? If you have any questions regarding a compliance matter, give our Compliance Helpdesk a call on 0113 512 0400 option 2 or email [email protected]. If you would like more details about any of our support services, please speak to your Account Manager. Alternatively, you can speak to your Regulatory Consultant if you have subscribed to a service which includes access to one.

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FSCS Levies

In the May 2020 edition of its Outlook publication, the FSCS explains the main drivers of the compensation forecasts and how it has decided on its final levies. The total amounts relevant to the intermediary sector are set out in the table below. The amounts of the levies shown are those payable by the classes with the provider contributions included in the paying class:

2019/20

2020/21

Levies Raised (£m)

Indicative Levy (£m)

Final Levy (£m)

Movement (£m)

18

General Insurance Distribution

12

23

(5)

Life Distribution and Investment Intermediation

229

189

213

16

1

Home Finance Intermediation

4

3

(2)

24

Base Costs

21

24

0

TOTAL

226

263

272

9

Of note is the additional increase of £16m from the initial indication for the Life Distribution and Investment Intermediation class, and a total increase of £40m compared to last year. The FSCS explains that the main reason for the increase in this compensation class is due to the inclusion of London Capital Finance. To establish how the FSCS levies will translate to fees for your firm, the FCA should now update the fees calculator on their website to reflect the final rates. The >Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11

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