Here's a selection of news stories from the last month that touch upon the people dimension of regulatory compliance. Select the links or scroll down for more details.
- 3 firms and 5 individuals are fined over unsuitable pension advice
- FCA highlights drivers of harm in Wholesale Brokerage Sector
- Regulator considers options to address potential deficiencies in consumer protection
- Business Plan sets out the FCA’s priorities for the next year
- FCA begins review of financial advice market
- ICO fines PPI claims company £120,000 for millions of nuisance texts
3 firms and 5 individuals fined over unsuitable pension advice
The FCA has published Decision Notices against three firms and five individuals for "acting without integrity" in relation to their pension advice business and for misleading the regulator.
The firms are Financial Page Ltd, Henderson Carter Associates and Bank House Investment Management Ltd. The individuals are Andrew Page, Thomas Ward, Aiden Henderson, Robert Ward and Tristan Freer. Andrew Page was a Director or Financial Page Ltd; Aiden Henderson was a Director of Henderson Carter Associates; Robert Ward and Tristan Freer are Directors of Bank House Investment Management Ltd. Thomas Ward was a De facto Director of Financial Paige Ltd. Financial Page Ltd and Henderson Carter Associates are now in liquidation.
The FCA found that the three firms had "little meaningful oversight and involvement in the advice provided to customers”. The investigation found that the directors should have known the products were unlikely to be suitable for retail customers except in very limited circumstances, but acted recklessly in closing their minds to the obvious risks. With the exception of Thomas Ward, the individuals were all approved persons in a controlled function at their firms and so should have known that by using the pension review and advice process they were acting recklessly.
The directors also acted dishonestly by providing false and/or misleading information to the FCA. The FCA found that Thomas Ward took deliberate steps to control and influence the information that Financial Page Ltd disclosed to the FCA. The regulator concluded that Thomas Ward disregarded the interests of Financial Page Ltd’s customers and “showed a willingness to enrich himself at their expense”.
The firms held themselves out to customers as providing bespoke independent investment advice based on a comprehensive and fair analysis of the whole market, but the FCA found that this did not reflect the reality of the service that was provided. The FCA comments: “In reality customers were recommended pension switches and pension transfers to products that invested in high risk, illiquid assets which were unlikely to be suitable for them.”
In total, 2,004 customers invested approximately £76 million of their pension assets. As of 29 January 2019, the Financial Services Compensation Scheme had paid compensation of £26.8 million to 1,106 customers of Financial Page Ltd, Henderson Carter Associates and Bank House Investment Management Ltd in relation to the above matter and is now investigating further claims.
The FCA’s Decision Notices impose penalties totalling over £1m on the five directors. Thomas Ward faces the largest fine of £416,558, followed by Andrew Page at £321,033. Aiden Henderson has been fined £179,179, Robert Ward £88,100 and Tristan Freer £52,725.
Andrew Page, Thomas Ward, Aiden Henderson, Robert Ward, Tristan Freer and BHIM have referred their Decision Notices to the Upper Tribunal where the parties will present their respective cases.
FCA highlights drivers of harm in Wholesale Brokerage Sector
The FCA has issued a ‘Dear CEO’ letter to wholesale brokerage firms. The letter outlines the FCA’s view of the key harms that brokerage firms operating in wholesale financial markets pose to their clients and markets.
The FCA has identified the following four key drivers of harm in this sector:
- Compensation arrangements which link broker remuneration directly to business volume without giving sufficient recognition to long-term or non-financial indicators of performance;
- Governance arrangements under which boards and senior managers lack the necessary tools with which to oversee their staff and business;
- Workflows which fail to recognise that a broker may perform different regulated activities (and/or act in different capacities) at different times; and
- A culture and mindset which underestimates the risk of brokers committing/facilitating market abuse and financial crime.
The FCA reminds wholesale brokerage firms that they need to have an appropriate understanding of their obligation to act in their clients’ best interests and to support fair and orderly markets. The regulator suggests that brokers in wholesale markets have made less progress than other sectors in embedding a culture of good conduct, it urges firms to take urgent action to raise standards across the sector.
Firms are asked to consider how the highlighted points apply to their business. The letter also sets out the FCA’s strategy to mitigate the drivers of those harms. The FCA comments that its supervision strategy includes a programme of work to address its concerns and other drivers of harm to clients and markets. The FCA will write to the CEOs of wholesale brokerage firms again after March 2021 to give an updated view of the key risks posed by firms in this sector.
Regulator considers options to address potential deficiencies in consumer protection
The FCA has identified options for change to address potential deficiencies in consumer protection. The regulator has published a Feedback Statement summarising the responses received to its Discussion Paper – ‘A duty of care and potential alternative approaches’ which was published in July 2018.
The Discussion paper encouraged debate on whether the FCA’s regulatory framework delivers the necessary level of consumer protection and achieves the right balance between firm and consumer responsibilities and, if not, how this could be addressed - whether by imposing on financial services firms a formal Duty of Care or by other means.
Having reviewed the analysis received, the FCA has identified options for change that are most likely to address potential deficiencies in consumer protection. These are:
- reviewing how it applies the regulatory framework – in particular, its application of the Principles in its authorisations, supervisory and enforcement functions, and how transparently it communicates with firms about this
- new/revised Principles to strengthen and clarify firms’ duties to consumers, including considering a potential private right of action for Principles breaches
The FCA will undertake further work to examine these options and will outline next steps in the autumn, seeking detailed views on specific options for change.
Business Plan sets out the FCA’s priorities for the next year
The FCA has issued its 2019/20 business plan. The business plan is an interesting read as it sets out the FCA’s main areas of focus for the next year and highlights what the regulator considers to be the most significant issues for the various sectors within the financial services market.
The plan explains that the FCA’s key priorities for the next year are: supporting a smooth transition post-Brexit; strengthening the FCA’s International engagement with fellow regulatory bodies; and assessing the impact of EU Withdrawal on the industry and consumers
The FCA identifies the following cross-sector priorities which it considers to be the most significant issues in financial services and where the FCA’s work will impact on multiple sectors in the coming year:
Firms’ culture and governance -
- Supporting culture transformation within financial services
- Exploring the role of ‘purpose’ in culture
- Appraisal of remuneration practices
- Extending the Senior Managers and Certification Regime to all firms
- Implementation of the Directory
Operational resilience -
- Policy proposals on operational resilience
- Setting clear expectations on outsourcing to third party service providers
- Reviewing approaches to change management
- Continued use of ethical hacking to test firms
- Supervisory multi-firm work on cyber-attacks
- Communications with smaller firms to increase awareness of cyber-attacks
Financial Crime and Anti-Money Laundering -
- Improving tackling money laundering through intelligence and data
- Strengthening partnerships on tackling economic crime
- Deepen the FCA’s understanding of types of fraud in key sectors
- Raise standards of professional bodies’ AML supervision through OPBAS
- Further work on tackling scams
The Business Plan also sets out sector-specific priorities for the seven sectors it regulates. There is a focus on consumer protection, especially in the retail sectors, with reviews into the financial advice market, retirement outcomes, high-cost credit, overdrafts and ‘Buy now pay later’ all planned for the coming year.
FCA begins review of financial advice market
The FCA has begun a review into the retail investment market to determine whether advice and guidance services meet consumer needs and to assess whether investors receive value for money.
The review will consider whether the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR) have been successful. The FCA’s ‘Call for input’ document explains that the FCA has some concerns that in parts of the market, there may be problems with conflicts of interest, poor treatment of consumers and misleading or confusing communications. Consumers can struggle to assess the cost of advice and may overpay for services which they do not need.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said: “Consumers and the market are changing rapidly, as technology, employment patterns and inter-generational challenges change the way consumers interact with financial services. As well as looking at how the market has evolved since RDR and FAMR, it’s important that our work looks ahead to see how we ensure that this important sector works well in the future. We want the market to deliver a range of good quality, affordable advice and guidance services that meet consumer needs.”
The regulator’s work will be finalised in 2020.
ICO fines PPI claims firm £120,000 for millions of nuisance texts
The Information Commissioner’s Office (ICO) has fined a PPI claims management company £120,000 for sending millions of unlawful spam texts about its services.
Hall and Hanley Ltd of Devonshire Street North, Manchester, were responsible for sending 3,560,211 direct marketing text messages between 1 January 2018 and 26 June 2018 about PPI compensation claims.
The ICO found that Hall and Hanley, which used a third party for this work, did not have valid consent as required by law. The firm claimed that consent to send the marketing had been obtained when people subscribed to one of four websites. However, Hall and Hanley were named on only two of these websites’ privacy policies and users were required to give consent to receive marketing from third parties as a condition of subscribing and this practice is forbidden.
Steve Eckersley, ICO Director of Investigations, said: “Companies which are responsible for generating these types of marketing messages should make sure they are operating legally or face a potential fine. Hall and Hanley should have known better. The laws on these types of marketing messages are strict because they can be very intrusive.”
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