FCA Compliance News – August 2019
Our pick of the biggest compliance news in Financial Services this month:
This month's roundup includes fines for Standard Life & Cathay, KPMG dismissal, Nationwide overdraft refunds, FCA defined benefit transfer protections and more...
- FCA fines Standard Life £30m for non-advised pension sales
- KPMG dismisses Financial Services Head following conduct probe
- Nationwide to refund £6m in overdraft charges to customers
- Cathay and 2 Directors fined for breach of listing principles and DTRs
- FCA to protect consumers transferring out of defined benefit schemes
- FCA consults on the fair treatment of vulnerable customers
- 42% of pension savers could be at risk of falling for scammer tactics
The Financial Conduct Authority (FCA) has fined Standard Life £30,792,500 for failures related to non-advised sales of annuities.
The FCA found that Standard Life had failed to put in place adequate controls to monitor the quality of the calls between its call handlers and non-advised customers. At the same time, the company offered its front-line staff large financial incentives to sell annuities, which encouraged them to place their own financial interests ahead of their customers. This gave rise to a significant risk that Standard Life's call handlers would fail to provide customers with the information they needed to choose an annuity appropriate to their circumstances.
Standard Life's call handlers were able to receive significant bonuses and rewards if they met or exceeded sales targets. During the period of misconduct, the FCA identified that nearly 22% of call handlers received more than 100% of their basic salary in bonus payments. This created the risk that call handlers would place their own financial interests ahead of fair customer outcomes.
On 31 January 2017, Standard Life voluntarily agreed to conduct a past business review to identify and pay redress to those customers who were likely to have suffered, or did suffer, loss because of its failures. In response to this review, as at 31 May 2019, Standard Life had paid approximately £25.3 million to 15,302 customers. The past business review should be completed by the end of 2019 and based on the redress payments made to customers in Standard Life’s redress exercise to date, the estimated total redress payable will amount to approximately £61.2 million.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said: “Standard Life Assurance Limited's controls needed to place fairness to customers at their heart. Here, the financial incentives available to staff for selling non-advised annuities by telephone created conflicts which led to unfair outcomes for some customers. Firms must have controls in place to ensure they are prioritising fairness to customers.”
Tim Howarth, Head of Financial Services Consulting and Risk Consulting at KPMG, has left the company following an internal investigation into his conduct.
Howarth, who had worked for KPMG for 15 years, was investigated over allegations of misconduct relating to messages he sent via Whatsapp, according to the Financial Times.
A spokesperson for KPMG told the FT: "We hold all of our people to a very high standard and take swift and appropriate action against any individual whose behaviour contravenes the firm’s values.
"As part of this commitment, we can confirm conduct issues have been raised related to a partner and following an internal investigation and disciplinary panel, that partner has left the firm. Under our process the partner has appealed."
Tim Howarth told the FT: “I am surprised by the KPMG announcement of the outcome of a disciplinary panel, which is bizarre as the decision is under appeal.
"I have not been given the reason for that decision. I had already resigned from the KPMG partnership. I did not believe that the process was fair or would lead to a just outcome. There is no complainant and there were no formal allegations pursued by anyone."
Howarth was previously a senior manager at the FCA’s predecessor, the Financial Services Authority (FSA).
Nationwide has committed to refunding £6 million to 320,000 overdraft customers after the Building Society failed to send the customers text warnings as required by the Competition and Markets Authority (CMA).
The CMA’s Retail Banking Market Investigation Order 2017 ensures customers with personal current accounts receive a text alert before banks charge them for unarranged overdrafts. This gives customers time to act to avoid unexpected charges. Nationwide admitted contravening the Order 20 times, with some of the errors dating as far back as February 2018 from when the Order was introduced. The CMA has directed Nationwide to take immediate action and improve its practices and compliance with the Order.
At present, the law prevents the CMA from imposing fines for breaches of either Orders or undertakings. This limits the CMA’s ability to ensure these breaches do not recur. However, Andrew Tyrie, Chair of the CMA requested these powers to ensure proper deterrence as part of a package of wider reforms to the CMA’s powers in a letter to former Secretary of State for Business, Energy and Industrial Strategy Greg Clark in February.
The FCA has fined Cathay International Holdings Limited (Cathay) £411,000 for breaches of the Listing Principles, Disclosure Rules and Transparency Rules (DTRs). It has also fined Cathay’s CEO £214,300 and its finance director £40,200 for being knowingly concerned in some of those breaches.
Cathay is a Hong Kong holding company with a premium listing on the London Stock Exchange. Cathay’s financial performance deteriorated over the course of 2015 due to various issues in its group. In the FCA’s view, there were serious procedures, systems and controls failings within the company which meant that Cathay did not monitor the full impact of these issues on its expected financial performance for the year ended 31 December 2015 compared to market expectations.
The FCA concluded that Cathay recklessly breached Listing Principle 1, which requires a listed company to take reasonable steps to establish adequate procedures, systems and controls to enable it to comply with its obligations.
The FCA also considers that Cathay recklessly failed to disclose to the market as soon as possible on or shortly after 6 December 2015 a material change in its actual and expected performance for the year ended 31 December 2015 compared to market expectations. This breached Disclosure Rules and Transparency Rules and meant relevant information was not released to the market as soon as it should have been, which is a breach of Premium Listing Principle 6.
Cathay also failed to deal with the FCA in an open and co-operative manner. Cathay responded to a request by the FCA for the actual forecasting procedures undertaken at the relevant times in 2015. However, in the FCA’s view the information Cathay provided on two occasions was materially different to the actual procedures followed at the relevant times in 2015 and this was done without any explanation.
The FCA considers that Mr Lee, the company’s Chief Executive Officer, was knowingly concerned in the company’s breaches, and acted recklessly. The regulator also concluded that Mr Siu, the company’s Finance Director, was knowingly concerned in Cathay’s breach, as Mr Siu was responsible for drafting the correspondence with the FCA and in the regulator’s opinion, knew that the information being provided was not a contemporaneous record of events.
Mark Steward, Executive Director of Enforcement and Market Oversight, commented: “Market integrity includes responsible directors who faithfully ensure listed companies have adequate procedures, systems and controls for compliance with listing obligations, announce relevant information in a timely manner and are open and co-operative with the FCA. These cases show that we will hold to account not only the company, but also its directors for breaches of these important obligations.”
The FCA has published a package of pension related proposals designed to improve the quality of pension transfer advice, and to help consumers get better value from their pension.
They have proposed a ban on contingent charging designed to protect customers from the conflicts of interest which arise where a financial adviser only gets paid if a transfer goes ahead. The ban would apply unless consumers have specific circumstances that mean a transfer is likely to be in their best interests.
It is also looking to address the conflicts of interest which arise where a financial adviser advising on a pension transfer stands to receive ongoing fees, which in some cases can be for 20-30 years following the transfer. The FCA proposes that advisers will be required to demonstrate why any scheme they recommend is more suitable than the consumer’s workplace pension scheme.
The FCA is consulting on other measures to change how advisers manage and deliver pension transfer advice. These include introducing abridged advice so that firms can deliver low cost advice to customers who should not transfer, improving how charges are disclosed and setting out how advisers should demonstrate customers’ understanding of the advice. The consultation will run until 30 October 2019.
In addition the FCA has also published a feedback statement on its Discussion Paper on effective competition in non-workplace pensions. The FCA found that many consumers are not engaged in pension decisions or aware of charges they are paying. Products and charges are often too complicated to compare – leading to a lack of price competition.
It has also published its final rules and guidance on the final tranche of remedies arising out of the Retirement Outcomes Review, including the introduction of investment pathways.
The FCA has launched a consultation on proposed guidance for firms on the fair treatment of vulnerable customers.
The guidance sets out the FCA’s view of what the FCA Principles require of firms to ensure that vulnerable consumers are consistently treated fairly across financial services sectors.
There are three main sections to the draft guidance:
- Understanding the needs of vulnerable consumers.
- Ensuring staff have the skills and capabilities needed.
- Translating that understanding into taking practical action.
The FCA wants to see doing the right thing for vulnerable consumers deeply embedded in firms’ culture. Firms will need to think about what the guidance means for their business and customers, and how they are understanding and addressing the needs of vulnerable customers.
The regulator comments that whilst many firms have made significant progress in how they treat vulnerable consumers, there needs to be more consistency across financial services sectors. In some cases, firms are clearly failing to consider the needs of vulnerable consumers, leading to harm.
Christopher Woolard, Executive Director of Strategy and Competition said: “Protecting vulnerable consumers is a key priority for the FCA and we want to see firms explicitly embedding the fair treatment of vulnerable consumers into their culture. Where we find that firms are not doing enough to ensure that consumers are treated fairly, we will take action.”
The guidance will be consulted on in 2 stages and the FCA is asking for comments on this first stage of the consultation by 4 October 2019.
The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) have joined forces to warn the public about fraudsters targeting people’s retirement savings. This year’s campaign is currently running on TV, radio and online.
New research suggests that 42% of pension savers, which would equate over 5 million people across the UK, could be at risk of falling for at least one of six common tactics used by pension scammers. The likelihood of being drawn into one or more scams increased to 60% among those who said they were actively looking for ways to boost their retirement income.
Pension cold calls, free pension reviews, claims of guaranteed high returns, exotic investments, time-limited offers and early access to cash before the age of 55 could all tempt savers into risking their retirement income.
The research also found that those who consider themselves smart or financially savvy are just as likely to be persuaded by these tactics as anyone else. 23% of all those surveyed said they’d talk with a cold caller that wanted to discuss their pension plans, despite the government’s ban on pension cold-calls this January.
The campaign sets out four steps to protect savers from pension scams:
- Reject unexpected pension offers made online on social media or over the phone
- Check the FCA Register or call the FCA contact centre on 0800 111 6768 to see if the firm is authorised by the FCA
- Don’t be rushed or pressured into making any decision about pensions
- Consider getting impartial information and advice
In 2018 victims of pension fraud reported that they had lost an average of £82,000.