RWA Compliance Regulatory Update - Broker Expo Nov 11

Regulatory Update Nov 2011: 

Regulatory Update Nov 2011 Ian Ritchie ACII – Managing Director Terence Clark FCoI – Head of Compliance

What’s on the agenda? : 

What’s on the agenda? Financial Conduct Authority (FCA) Financial Crime Corporate Governance Client Money Treating Customers Fairly

Financial Conduct Authority (FCA): 

Financial Conduct Authority (FCA)

Financial Conduct Authority: 

Financial Conduct Authority With us in 2013 (Q1/Q2) More intrusive More firm visits, particularly to larger firms Product intervention Tougher enforcement action More data gathering Significant focus on client money

FCA Objectives: 

FCA Objectives The FCA will have one statutory objective Protecting and enhancing confidence in the UK Financial Services Market There will be 3 “sub objectives” Securing consumer protection Efficiency and choice in the financial sector Protect and enhance integrity in the UK financial sector.

Practicalities: 

Practicalities There is unlikely at this stage to be any application process, it should be seamless transfer. There may well be a transition period for brokers to use “old” stationery etc Rules - Much will depend on the shape of IMD2 IMD2 keywords - disclosure and managing conflicts of interest, consumer understanding, transparency, professionalism, harmonisation Implementation date may alter

Financial Crime: 

Financial Crime

A key theme going forward!: 

A key theme going forward! Financial Sanctions Money Laundering Proceeds of Crime Act 2002 Anti Bribery / Bribery Act Data Security “National Crime Agency” (2013)

Financial Sanctions: 

Financial Sanctions Terrorist Asset Freezing Etc Act 2010 Obligation on any firm providing a Financial Service to check two lists produced by HMT Criminal offence to provide financial services to anyone on the HMT lists. Free to check Updated in real time Back office systems help (cost issue?)

Money Laundering / Proceeds Of Crime Act 2002: 

Money Laundering / Proceeds Of Crime Act 2002 Money Laundering rules not specifically applicable to GI firms. (not included in IMD) But, good practice to include in processes POCA 2002 applies to all firms Must have robust procedures All staff must receive training Must have reporting procedures in place.

Bribery Act 2010: 

Bribery Act 2010 Came into effect 1 July 2011 Corporate offence of failing to prevent.. Firms must have reasonable policies and procedures in place to prevent bribery Polices and procedures should be proportionate reflecting the firm. These can be quite simple – e.g. Gifts/Hospitality registers Expenses processes

Bribery Act – What should I do?: 

Bribery Act – What should I do? Review all procedures Implement policies / procedures Train all staff It is not necessary to have long winded, complicated documents Need not be an expensive exercise

Data Security: 

Data Security A key theme going forward Cornerstone of TCF – How can you treat your customers fairly when you do not look after their data? Physical security Data security Security of data FSA will be publishing further guidance

Data Security – what is needed?: 

Data Security – what is needed? Review / Audit Physical and IT security Prepare Data Security policy Include in Business Continuity Plan Appoint somebody to be responsible (with a deputy) Regular & documented reviews Staff training & awareness

National Crime Agency: 

National Crime Agency The National Crime Agency (NCA) will tackle organised crime, defend our borders, fight fraud and cyber crime, and protect children and young people (source Home Office website Sept 2011) To replace Serious Organised Crime Agency (SOCA) Effective 2013 Working closely with FSA / FCA

Insurer TOBA’s: 

Insurer TOBA’s Many insurers issuing new TOBA’s New clauses which you need to be aware of Requirement to check for Financial Sanctions Requirement for Bribery Act procedure Insurers are asking to see your documents!

Corporate Governance: 

Corporate Governance

Corporate Governance: 

Corporate Governance Q. What does it actually mean? A. For most smaller firms, its a matter of ensuring everything is written down, all your policies, procedures and processes. or Why you do what you do!

Write it down....: 

Write it down.... Internal sales / renewal processes Document all board, management, sales & staff meetings All regulatory processes How you deal with money / accounts Budgets, Targets, P&L etc. Management Information & Business Plans HR / Personnel

....but keep it simple: 

....but keep it simple HSBC & ICI will have copious documents! You need what is relevant and proportionate for your firm. Short, succinct statements and notes are fine Larger firms will need more defined documents Differing legal entities will have different approaches

FSA Focus: 

FSA Focus Good Corporate Governance will be very much a part of the next wave of FSA Thematic visits / workshops So, review now!

Client Money: 

Client Money

FSA Focus: 

FSA Focus Recent work has focused on Auditors reports Account documentation Money calculations Capital adequacy Refunds / Write backs Permissions

Auditors Reports: 

Auditors Reports New procedure in place for auditors Audits required by Rule Previous poor quality audits Confusion as to what is required & format Must be addressed to FSA but sent to you Know what is needed for your firm Mandatory for Non Stat client accounts Mandatory for Stat client accounts that have held £30,000 in total at any time in the year

Account Documentation: 

Account Documentation Do you know where your exchange of letters with your bank are? Have you got the correct Trust Deed in place for the Non Stat client account and is this to hand? Are copies of your client money calculations readily available? Do you have copies of all the previous auditors reports to hand? Do you have a written specific Client Money Procedure?

Money Calculations: 

Money Calculations Concern not being done within 25 day period Commission not being transferred out in the correct manner (timescale and in accordance with the Insurer TOBA) Failure to reconcile against office accounts etc.

Capital Adequacy: 

Capital Adequacy Ensure you meet the required amount at all times – not just at GABRIEL report time. Need to have a process to check position frequently Check bank “solvency” regularly – This is a rule!

Refunds / Write Backs: 

Refunds / Write Backs Ensure refunds are made within one day of you receiving cleared funds from insurers. Cannot leave credits in client account to set off against future renewals, even if client tells you to! Write Backs – All efforts must be made to trace clients and re-issue monies.

Permissions: 

Permissions If you have Risk Transfer from all – you do not hold client money. So, do you need the permission to do so? Review and cancel if appropriate – FSA do not want firms to have permissions they do not need.

Treating Customers Fairly: 

Treating Customers Fairly

Current FSA thoughts: 

Current FSA thoughts Concerns about financial promotions Concerns about sales of “add on” policies More rules based approach on the horizon? Whilst no specific thematic TCF work, it will feature in all future similar activity

Financial Promotions: 

Financial Promotions Concern about quality of promotions Not all “Clear, fair and not misleading” Future work promised in this area Still concerns about aggregator sites

“Add Ons”: 

“Add Ons” TCF Issue Not clear if sales are advised or not Not always clear that these may be optional Lack of clear information and guidance Each “add on” is a separate policy, so should have demands & needs statement. FSA looking at this matter closely

Referral Fees etc…..: 

Referral Fees etc….. FSA taking a close look at where your income comes from. Can you justify it? Do you tell they client about it? Is it clear what you do for the sum? Expect more from the regulator

Rules Based?: 

Rules Based? Currently all principles based FSA considering move to a more rules based environment for Product design Does this mean more TCF rules for GI brokers?

Any Questions? We will be around all day....: 

Any Questions? We will be around all day....

Slide 37: 

Ian Ritchie 07768 588526 Ian.ritchie@rwagroup.co.uk Terence Clark 07595 120972 terence.clark@rwagroup.co.uk