We are pleased to introduce you to our OAC Digest 'Roundup and Commentary' edition, which every 4 to 6 weeks will extract from the weekly editions of OAC Digest a number of key regulatory news items and issues, focus on those issues and provide relevant comment from our experts.
Five topics have been covered in this edition.
The above consultation instigated by FCA ends on 19 September, and it is very likely that the final nature of the proposed regulation may be influenced by the events detailed below in item 2. OAC will be responding to the FCA consultation with a number of points, for example:
- FCA will allow (if desired by any firm) the continued use of a KFD alongside the new KID, which could be confusing for consumers because of the different methods of calculation used by the two documents for illustrations.
- The KID proposals also prescribe the amount of premium that should be included in an illustration – this will cause issues for tax-exempt savings plans. Policies capped by a legal requirement would need to be illustrated at a much higher value than would be realistic.
- There is also some information that the KID will not require, which could mean customers are not treated fairly, such as for with-profits schemes that ought to include important information such as tax issues and policy qualifying aspects.
- Additionally, there is a danger that subsequently FCA/FOS might deem that there had been an insufficient level of information supplied to a complainant.
2. From 5 September 2016 edition: The European Parliament’s Economic and Monetary Committee (ECON) rejected as “misleading” and flawed, proposals aimed at providing greater protection to consumers buying packaged financial products, and unanimously voted to send the proposals back to the European Commission for revision
The Commission’s proposals set the regulatory technical standards (RTS) which investment providers would have to meet to provide greater transparency about investment products and clearer information to investors. The RTS are designed to accompany the PRIIP legislation which is due to come into force on 31 December 2016.
Before the vote, John Berrigan of the European Commission said the ideal solution would be to introduce both the level one legislation and the technical standards at the same time. But, he said, as a “second best option” the Commission was prepared to allow the introduction of the main legislation without the technical standards. Many MEPs across the political spectrum were sceptical about how such an arrangement might work and ultimately decided to back a proposal to delay the introduction of the main legislation until the technical standards were agreed.
Much of MEPs’ opposition centres on the "Key Investment Document" (KID) which is meant to provide consumers with information about the features, risks and costs of an investment product. It was argued that proposed formulae for predicting investment performance contained flaws which would make performance look far better than it was likely to be.
The measure is being put to a full plenary vote today for Parliament to either support or reject the motion.
This clearly throws into doubt the whole introduction of the new regime and this may well be the precursor to delaying its implementation, an outcome that may well benefit the industry and consumers in the longer term. OAC is engaging with insurers to help them with their preparation of KIDs, in particular the highly complex numerical calculations that are required.
Contact us if you would like to discuss how we can help.
On 29 July the FCA published PS16/19, presenting the final rules on the introduction of a financial crime reporting return. This affects firms subject to the Money Laundering Regulations with certain exceptions and the Handbook provisions come into force on 31 December 2016.
Providers of life products are classified as life insurers and as such are subject to the financial crime/money laundering regime. Details of the type of firms this reporting requirement applies to are shown at the new SUP 16.23.2R (in the table shown in that rule - see PS16/19 page 4/24 of the Annex).
- a UK bank;
- a building society;
- a EEA bank;
- a non-EEA bank;
- a mortgage lender;
- a mortgage administrator; or
- a firm offering life and annuity insurance products.
Details of firms excluded from the requirement to submit the return are also shown at point 16.23.1. Firms are excluded where both of the following conditions are satisfied:
- the firm has reported total revenue of less than £5 million as at its last accounting reference date; and
- the firm only has permission to carry on one or more of the following activities:
- advising on investments;
- advising on investments;
- dealing in investments as agent;
- dealing in investments as principal;
- arranging (bringing about deals) in investments;
- making arrangements with a view to transactions in investments;
- assisting in the administration and performance of a contract of insurance in relation to non-investment insurance contracts;
- agreeing to carry on a regulated activity;
- advising on pension transfers and pension opt-outs;
- credit-related regulated activity;
- home finance mediation activity;
- managing investments;
- establishing, operating or winding up a collective investment scheme;
- establishing, operating or winding up a personal pension scheme;
- establishing, operating or winding up a stakeholder pension scheme;
- managing a UCITS;
- managing an AIF;
- safeguarding and administering investments;
- acting as trustee or depositary of a UCITS;
- acting as trustee or depositary of an AIF; and/or
- operating a multilateral trading facility.
Relevant firms will have to submit the return within 60 business days of their financial year-end and are going to be allowed to do so on a “best endeavours basis” for the first return as implementing timescales are very short.
The requirements state that once this becomes operational on 31 December 2016, firms with reporting periods ending from that date onwards should be ready to submit their reports within 60 business days of that financial year end date.
Firms must submit the Annual Financial Crime Report in the form specified in SUP 16 Annex 42AR using the appropriate online systems accessible from the FCA’s website.
4. From 8 August edition: FCA announcement on consultation re redress methodology in cases of unsuitable advice on transfers from defined benefit occupational pension schemes to personal pensions
The Financial Conduct Authority (FCA) announced that it intends to consult in the autumn of 2016 to update the methodology used to calculate the levels of redress due in cases of unsuitable advice on transfers from defined benefit (DB) occupational pension schemes to personal pensions.
The current redress methodology used in the industry and by the Financial Ombudsman Service was originally developed for the Pensions Review of the 1990s. It is intended to put consumers back in the position they would have been in had they stayed in the DB scheme. The FCA is concerned that the redress methodology may no longer achieve this objective so has decided to consult on whether to update it. Any changes to the redress methodology will apply to future redress payments.
Where a firm is currently handling a complaint regarding advice given in connection with pension transfers, or receives such a complaint before the outcome of the consultation is known, it should continue to comply with its obligations under the complaints handling rules. These are:
- to investigate the complaint competently, diligently and impartially; and
- to assess the complaint fairly, consistently and promptly.
If, following its investigation and assessment, the firm needs to offer redress under the current methodology, the FCA would not expect it to be fair for the firm to attempt to settle the complaint on a 'full and final' basis until the outcome of the consultation is known. The FCA would expect the firm to write to the customer explaining why it is not in a position to provide a final response. However, the firm should also consider what options may be available for dealing with the complaint fairly on an interim basis before the outcome of the consultation is known. For example, if it is able to do so, the firm may offer provisional redress now and then provide a final response and any further redress (where appropriate) once the outcome of the consultation is known.
The FCA recognises that for some consumers this may cause a delay in redress. To minimise delay, the FCA expects to consult in the autumn and reach conclusions by spring 2017.
Our original comment in early August can be found here.
OAC continues to gather information from the FCA, FOS and our clients on the issues, and we will share an updated position as soon as we are able to do so.
5. From 15 August edition: Whistleblowing Instrument 2015 came into force on 7 September 2016 and whistleblowing rules take full effect from that date
Firms will need to reconsider their internal whistleblowing policies and training. They will need to implement and embed an awareness that all staff have the right to whistleblow directly to the regulator should they wish to do so. Please note this is not an obligation for staff to always whistleblow to the regulator, and indeed it would be preferable that they whistleblow to the senior manager the firm will have appointed as its "whistleblowing champion".
The regulators have recently published a package of rules designed to build on and formalise the good practice already widespread in the financial services industry. The rules aim to encourage a culture where individuals feel able to raise concerns and challenge any poor practice without fear of reprisal. These rules apply to insurers subject to the Solvency II directive, although all other firms are also well advised to take heed of this guidance as the regulators will expect similar high standards throughout.
The new rules on whistleblowing require a firm to:
- appoint a senior manager as their whistleblowers’ champion;
- put in place internal whistleblowing arrangements able to handle all types of disclosure from all types of person;
- put text in settlement agreements explaining that workers have a legal right to blow the whistle;
- tell UK-based employees about the FCA and PRA whistleblowing services;
- present a report on whistleblowing to the board at least annually;
- inform the FCA if it losses an employment tribunal with a whistleblower; and
- require its appointed representatives and tied agents to tell their UK-based employees about the FCA whistleblowing service.
The relevant Policy Statement can be found here.
The new whistleblowing rules affect:
- UK deposit-takers with assets of £250m or greater, including banks, building societies and credit unions;
- PRA-designated investment firms; and
- insurance and reinsurance firms within the scope of Solvency II and to the Society of Lloyd’s and managing agents.
These are collectively referred to as 'relevant firms' throughout the document. Note that for all other regulated firms, the text of the rules will act as non-binding guidance.
Contact us if you would like any help reviewing your own firm’s implementation of these requirements or any help on how best to manage this.
For more information
Senior Regulatory Compliance Consultant
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