FCA Compliance News | Nov 2018

Posted by

Sharon Williams

on 29 Nov 2018

An overview of the most recent and upcoming changes to FCA guidelines for senior managers...

FCA Compliance News - November 2018

Regulatory Update

The last six weeks have been a very busy time for the UK regulators, with both the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) issuing numerous publications. Aside from the plethora of Brexit-related communications for regulated firms and various Solvency II updates for insurers, the FCA has issued a series of publications that set out some interesting developments for the financial services sector. To assist Senior Managers in keeping up to date on these developments, a brief overview of some of these developments and publications is provided below.

FCA to extend access to the FOS:

Senior Managers should be aware that following the consultation the FCA is extending access to the Financial Ombudsman Service (FOS) to more small and medium-sized enterprises (SMEs), as well as larger charities and trusts, and a new category of personal guarantors. The FCA will do this by changing the definition of an ‘eligible complainant’ in DISP to include more small and medium‑sized enterprises (SMEs), charities and trusts, as well as personal guarantors of loans to a business they are involved in. Policy Statement 18/21 publishes near final rules with a provisional start date of 1 April 2019. The FCA expects to make final rules before the end of 2018. Firms should start to prepare for these changes to ensure that their complaint handling arrangements are amended and rolled out in time for implementation in five months' time.

FCA consults on increasing the FOS Award limit:

Regulated firms should be aware that the FCA is proposing to more than double the amount of compensation the ombudsman service can require firms to pay when it upholds a complaint. Currently, the Ombudsman can force firms to pay compensation of up to £150,000 and it can recommend firms pay more to the complainant if it believes that is appropriate. However, any amounts above the limit are voluntary for the firm. The FCA’s consultation, which closes on 21/12/18, proposes:

  • A new binding award limit of £350,000 for complaints about acts or omissions by firms on or after 1 April 2019.
  • £160,000 for complaints about acts or omissions by firms before 1 April 2019, and which are referred to the ombudsman service after that date.

For any complaints referred to the ombudsman service before 1 April 2019, the limit will remain at £150,000. The FCA intends to publish its final rules in a Policy Statement in early March 2019.


Senior Managers of regulated firms that outsource processes to third parties, and particularly those that manage those processes, should take note that the management and oversight of outsourcing in the financial services sector continues to be a firm focus for the FCA. On 30 October 2018, the FCA fined Liberty Mutual Insurance £5.2m, over failures in its oversight of mobile phone insurance claims and complaints handling. The final notice explains that Liberty breached Principle 3 (Management and Control) and Principle 6 (Customers’ interests) of the FCA’s Principles for Businesses in the oversight of its mobile phone insurance claims and complaints handling processes administered through a third party. In 2013, the FCA published a Thematic Review setting out its expectations for the mobile phone insurance market and it followed this up with a further publication in December 2015. The regulator also produced a Thematic Review reiterating insurers’ regulatory obligation for overseeing outsourcing arrangements in 2015.

General Insurance Sector: Pricing Practices

Senior Managers and compliance teams in insurance firms have had a busy few months, both in implementing the Insurance Distribution Directive and in their preparations to implement the Senior Managers and Certification regime (SM&CR) by 10 December 2018. However, Senior Managers should also take the time to review a series of communications issued by the FCA which highlight concerns about insurance pricing practices. FCA supervisory work on home insurance pricing practices (detailed in TR18/4) has identified the following issues relating to firms’ current pricing practices:

  • Firms failing to have appropriate and effective strategies, governance, control and oversight of their pricing practices and activities, such that they are unable to reliably assess and evidence whether they are treating their customers fairly.
  • Differential pricing leading to some identifiable groups of consumers paying significantly higher prices than other identifiable groups of consumers with similar risk and cost to serve characteristics.
  • The risk of discriminating against consumers by using rating factors in pricing based on data relating to or derived from protected characteristics.

The findings have led the FCA to conclude that a market study into retail home and motor insurance pricing practices is necessary. Alongside the market study, the FCA has initiated a public debate on the broader issue of fair pricing and the related possible harms within financial services markets. Information about the debate can be found in the Discussion Paper 18/9. While the FCA’s communications on this topic are primarily of interest to retail general insurance firms, the regulator’s findings and expectations in relation to pricing governance and controls are relevant to all insurance firms involved in insurance pricing activities.

The FCA has written to the CEOs of insurance firms involved in pricing activities to set out its expectations of them and their firms. Senior Managers should assess whether their pricing practices result in their customers being treated fairly and they should be able to demonstrate how they have reached this conclusion. Additionally, it should be clear who within the business is responsible for pricing decisions and therefore responsible for the customer outcomes that result from those decisions.

Retail & Wholesale Banking whistleblowing arrangements

The FCA has reviewed how retail and wholesale banking firms have implemented its whistleblowing rules and has published its findings. The FCA update reminds firms that culture and governance remains a key priority. The review found that while there are examples of good practice, such as detailed investigation processes and monitoring arrangements for potential victimisation cases, there are areas for improvement, most notably in the provision of whistleblowing training and the annual report to the firm’s governing body. The FCA also found that firms needed to better document their whistleblowing investigation process and practices to protect whistleblowers against victimisation.

Senior Managers should review the published findings (including the areas of good practice observed and areas for improvement, together with the FCA’s expectations on firms’ whistleblowing arrangements) and consider whether their firms need to take action to improve their existing arrangements.

Improving the quality of Pension Transfer Advice

The FCA has introduced new rules aimed at improving the advice people receive when they are considering transferring their safeguarded benefits. The new rules and guidance (detailed in Policy Statement 18/20) include:

  • Raising qualification levels for pension transfer specialists (PTSs) to require them to obtain the same qualification as an investment adviser alongside the existing PTS qualification.
  • Guidance to clarify FCA expectations that advisers should be exploring clients’ attitudes to general risks associated with a transfer, in addition to their attitude to investment risks.
  • Guidance to illustrate how firms can carry out an appropriate ‘triage’ service without stepping across the advice boundary, by providing generic, balanced information on the merits of pension transfers.
  • A requirement for firms to provide a suitability report regardless of the outcome of advice.
  • Updating the assumptions to be made when valuing increases applied to DB scheme benefits, where there are upper and lower limits applying to inflationary pension increases.

When two advisers work together on the pension transfer they need to work together to collect the necessary information, undertake risk profiling, and consider the impact of the loss of any safeguarded benefits has on the client’s ability to take on investment risk. Firms using this advice model should ensure they have robust arrangements and processes in place so the responsibilities and liabilities of the different advisers are clear.

Firms need to manage the implementation of these new requirements. The guidance on two advisers working together and assessing attitude to transfer risk and the requirement to prepare a suitability report in all circumstances come into force immediately. The perimeter guidance on triage comes into force on 1 January 2019. The changes to the pension increase assumptions come into force on 6 April 2019. The remaining changes, which cover the pension transfer specialist qualifications and appropriate exam standards, will come into force on 1 October 2020.

Asset Management: FCA to reform open-ended funds

The FCA is consulting on proposals to reduce the potential for harm to retail investors in funds that hold illiquid assets, particularly under stressed market conditions. CP18/27 proposes a package of measures that will require:

  • Funds to suspend trading when the independent valuer expresses uncertainty about the value of ’immovables’, such as commercial property, that account for a significant part of the fund’s assets.
  • Managers of funds investing mainly in inherently illiquid assets to produce contingency plans in case of a liquidity risk crystallising depositaries to oversee the liquidity management process in these funds.
  • More information to be disclosed about the liquidity risks in these funds, the liquidity management tools available to the fund manager, the circumstances in which they may be used, and what impact they may have on investors.

The proposals align with IOSCO’s revised recommendations on liquidity risk management for collective investment schemes (published in February 2018).

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