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    Here's a selection of news stories from financial services compliance over the last month. These illustrate important messages coming from the FCA but also the people dimension of compliance - things you can do in your organisation to avoid the missteps of others.

    Select the links or scroll down for more details.

    Debt management sector needs to improve the treatment of vulnerable customers

    Publishing its findings from its second thematic review of the debt management sector, the Financial Conduct Authority (FCA) has called on the sector to do more to improve the identification and treatment of vulnerable customers.

    The regulator found that whilst firms’ identification and treatment of vulnerable consumers is generally better than at the time of the first review, two thirds of the firms that the FCA looked at needed to make improvements in this area.

    The FCA highlighted the following examples of unacceptably poor standards and practices, which it found in two of the smaller firms reviewed:

    One firm failed to identify an 87-year-old widow on a 95-year debt management plan as vulnerable, despite her telling the firm several times that she had difficulty with technology and with figures and paperwork. The FCA found that the firm’s advisers talked over her, pushed her to sign documents online and refused to help her when she was clearly distressed.

    Another firm collected unaffordable payments from a vulnerable customer for 6 months, despite having been told about the customer’s reduction in income due to them being diagnosed with cancer and having to give up work to start treatment.

    The FCA has commenced supervisory action in these cases and opened an enforcement investigation in one case to date.

    The review also identified a general need for firms to provide better advice to couples, or others seeking help together. Some firms routinely failed to consider or discuss what debt solutions are available and suitable for each customer individually.

    Jonathan Davidson, Executive Director of Supervision, Retail and Authorisation said: 'It is vital that consumers who need help with their debts get quality advice and, if they enter into a debt management plan, that they can afford the payments.”

    He added: “many firms have more to do, particularly for more vulnerable consumers, and we have also found that a small number still have unacceptable standards and practices – so we are taking action to stop this.”

    The debt management sector is a priority area for the FCA and has been since the transfer of consumer credit regulation on 1 April 2014. The FCA reported that many improvements have been made since the 2014/15 thematic review, but that firms need to work harder to make sure they consistently deliver good outcomes.

    Carphone Warehouse fined over £29m for insurance mis-selling

    As we touched on in this month's compliance news update, the FCA has fined Carphone Warehouse £29,107,600 for mis-selling mobile phone insurance. The fine follows an FCA investigation which stemmed from whistleblowing reports. The FCA found Carphone Warehouse failed to give its sales consultants the right training to give suitable advice to customers purchasing the insurance, which was a mobile phone insurance and technical support product called the ‘Geek Squad’.

    In particular, the FCA found that sales consultants were not trained adequately to assess a customer’s needs to determine whether Geek Squad was suitable. Sales staff were trained in 'spin selling', where the focus was on persuading customers to purchase Geek Squad and on selling the features of the product. They were also trained to recommend Geek Squad to customers who already had cover, for example through their home insurance or bank accounts.

    During the period under investigation (1 December 2008 to 30 June 2015), Carphone Warehouse sold Geek Squad policies worth over £444.7 million. However, when a high proportion of these policies were subsequently cancelled early, Carphone Warehouse failed to consider that the high cancellation rates were an indicator of mis-selling.

    Carphone Warehouse also failed to properly investigate and fairly consider complaints about the product. This resulted in valid complaints not being upheld in circumstances where the product had been mis-sold. As a result, management did not have an accurate impression of indicators of mis-selling. The FCA’s final notice to Carphone Warehouse can be viewed here.

    Mark Steward, executive director of Enforcement and Market Oversight at the FCA, said: “Carphone Warehouse and its staff persuaded customers to purchase the Geek Squad product which in some cases had little to no value because the customer already had insurance cover. The high-level of cancellations should have been a clear indicator to the management of mis-selling.”

    Credit card firms warned to stop hitting struggling customers with multiple fees

    Credit card firms have been warned by the FCA to avoid piling on extra fees when customers are experiencing financial difficulties.

    The FCA has carried out a review of 100 lenders’ treatment of their credit-card customers. Following the review the FCA has written to firms telling them to stop hitting struggling customers with multiple or consecutive charges, and instead to treat missed payments as a sign that customers were in financial difficulty.

    Jonathan Davidson, FCA’s Executive Director of Supervision – Retail and Authorisations, comments: “It is unacceptable for firms to ignore signs of customers struggling financially and continue to charge them fees for missed payments which they likely can’t afford.

    “Our research showed that a large number of customers were often missing payments but continuing to be charged fees. In some cases, customers ended up being charged multiple fees as a result of each missed payment. This may suggest that firms are not adequately identifying and dealing appropriately with signs of actual or possible financial difficulties.”

    The FCA has called on firms to consider whether their policies and procedures in relation to fees and charges result in fair consumer outcomes and are compliant with the rules and guidance provided in the FCA Handbook.

    FCA to address unclear and excessive Motor Finance costs

    The FCA is considering changes to the way in which commission works in the motor finance sector after uncovering serious concerns about the way in which lenders are choosing to reward car retailers and other credit brokers.

    The FCA has been reviewing the motor finance market to assess how the market works and whether consumers are at risk of harm. Publishing the review findings, the FCA reports that the widespread use of commission models which allow brokers discretion to set the customer interest rate and to earn higher commission, can lead to conflicts of interest which are not controlled adequately by lenders. This can lead to customers paying significantly more for their motor finance.

    The FCA is assessing the options for intervening to address the harm it has identified. It says this could include strengthening existing FCA rules or other steps such as banning certain types of commission model or limiting broker discretion.

    Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA, said: “We found that some motor dealers are overcharging unsuspecting customers over a thousand pounds in interest charges in order to obtain bigger commission payouts for themselves. We estimate this could be costing consumers £300 million annually. This is unacceptable and we will act to address harm caused by this business model.

    “We also have concerns that firms may be failing to meet their existing obligations in relation to pre-contract disclosure and explanations, and affordability assessments. This is simply not good enough and we expect firms to review their operations to address our concerns.”

    The FCA will follow up with individual firms where failures were identified but it expects all firms, both lenders and brokers, to review their policies, procedures and controls to ensure they are complying with all relevant regulatory requirements and are treating customers fairly.

    UBS fined £27.6 million for transaction reporting failures

    UBS AG (UBS) has been fined £27,599,400 by the FCA for failings relating to 135.8 million transaction reports between November 2007 and May 2017.

    UBS failed to ensure it provided complete and accurate information in relation to approximately 86.67m reportable transactions. It also erroneously reported 49.1m transactions to the FCA, which were not reportable. Altogether, over a period of nearly a decade, UBS made 135.8m errors in its transaction reporting, breaching FCA rules.

    The FCA found that UBS failed to take reasonable care to organise and control its affairs responsibly and effectively in respect of its transaction reporting. The failings related to aspects of UBS’s change management processes, its maintenance of the reference data used in its reporting and how it tested whether all the transactions it reported to the FCA were accurate and complete.

    Effective market oversight relies on the complete, accurate and timely reporting of transactions. Transaction reports help the FCA identify potential instances of market abuse and combat financial crime. Mark Steward, FCA Executive Director of Enforcement and Market Oversight commented: “Firms must have proper systems and controls to identify what transactions they have carried out, on what markets, at what price, in what quantity and with whom. If firms cannot report their transactions accurately, fundamental risks arise, including the risk that market abuse may be hidden.”

    The FCA’s final notice to UBS can be viewed here.

    Lawyers and Accountants risk enabling money laundering, warns OPBAS

    The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) has warned that lawyers and accountants are at a high risk of enabling money laundering.

    The OPBAS oversees the adequacy of the anti-money laundering supervisory arrangements of 22 professional bodies (PBSs). It has just completed its first-year assessment of the professional bodies it supervises. The review highlighted a series of anti-money laundering failings, including:

    • 80% of PBSs lacked appropriate governance arrangements, with just under half lacking clear accountability and oversight for anti-money laundering (AML) supervision at a senior level.
    • 91% of relevant PBSs were not fully applying a risk-based approach to supervising members. They had varying levels of understanding of ML and TF risks in their sectors. 91% of relevant PBSs had yet to start or were still in the process of collecting all the information they needed to carry out ML/ TF risk profiling of their members.
    • 23% of relevant PBSs undertook no form of AML supervision. Where PBSs had identified ML risks, it was not always clear how they used this to direct their supervisory activity.
    • PBSs had inconsistent approaches to intelligence and information sharing. 48% of PBSs were members of one or both of the accepted intelligence platforms – Shared Intelligence Service (SIS) and the Financial Crime Information Network (FIN-NET) – but used them rarely.
    • 92% of PBSs lacked adequate measures to encourage individuals in their sectors to report breaches of the MLRs, including whistleblowing arrangements.
    • 28% of PBSs did not have resource and/or systems that were secure enough to handle and store sensitive information.
    • 80% of PBSs lacked appropriate staff competence and training. Employees in 40% of PBSs were unclear of their internal reporting obligations for suspicious activity.
    • 36% of PBSs lacked sufficient record keeping policies and procedures, which meant they did not always record their rationale for decisions.
    • 48% of PBSs lacked formal internal audit or quality assurance procedures.

    Commenting on the findings, Alison Barker, Director of Specialist Supervision said: “We want professional bodies to recognise the risk that your members can be vulnerable to facilitating money laundering“. She continued: “we want to see an improved quantity and quality of supervision, enforcement and intelligence sharing outcomes.”

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