Suitable Advice

Firms who give advice to or manage funds on behalf of retail customers should urgently consider the content of FCA’s “Proposed Guidance on Assessing Suitability”, issued on 7th January.

Issued under the FCA’s new procedure for issuing guidance, it has a consultation period ending 28th January. Whilst such FCA guidance does not have the force of rules and remains “informal”, the fact that it will have been through a consultation process – however brief – will give it greater force than it would otherwise have.

This is all the more important given that FCA will see the subject matter as integral to its consumer protection agenda, and state that “we will be looking to see how firms have acted on this report.”

However the questions raised by the proposed guidance do not lend themselves to quick resolution. These include the way in which firms describe risk, the nature of customers understanding of that risk, and when advice may not be suitable. FCA’s comments on all of these matters – which are all important – need to be fully considered by firms.

Our advice to clients is to consider the Proposed Guidance in full. If the issues raised require greater consideration, contact your trade association to ask FCA to extend the consultation period. Otherwise contact us to discuss any implications this may have for you.

Keep on treating customers fairly

Fulcrum Compliance can confirm that rumours of the death of the TCF initiative are unfounded. TCF is far from dead, and the FCA is currently marching this very much alive initiative through small non-relationship managed firms.

FCA has held a number of half-day “training seminars” at Canary Wharf for randomly chosen firms. Firms who are invited to attend any subsequent sessions should decline at their peril.

Firms attending the training will then be asked to present themselves at Canary Wharf at a later date, armed with their TCF policy, gap analysis and other supporting material.

For the relationship-managed firm who has been in routine dialogue with FCA since the inception of the TCF initiative, this will prove an easy hurdle to vault. However for the smaller firm, used to being off the FCA’s radar, this can prove challenging.

Fulcrum Compliance have experience in guiding firms through the meeting with FCA, updating the relevant documents so that the firm gives FCA the best possible impression. We can then work with you in addressing the rectification points that FCA raises.

If you are invited to attend one of FCA’s seminars, contact us in advance to discuss how we might assist.

Skilled Persons Reports – A Routine Expense?

Stories of the proliferation of Skilled Persons Reports (formally known as Reports under Section 166 of the Financial Services and Markets Act 2000) are the common currency of compliance conversation.

FCA has revealed that indeed the incidence of these reports has grown – from 18 commissioned in 2006/7 to approximately 140 commissioned in 2010/11. Also noteworthy is the escalating range of charges that these reports have commanded – ranging from £3,000-£750,000 in 2006/7 to £3,000-£4.4 million (!) in 2009/10.

The key issue about these costs is that whilst the report will be commissioned at the instigation of the FCA, the cost is borne by the firm.

Of further interest will be our understanding that FCA are keen to commission far more of these reports in the future, and use them as a routine supervisory tool.

The subject matter of these reports covers familiar ground, with most being commissioned on governance, SYSC, TCF and suitability matters. In recent years, more have been commissioned on prudential matters, including liquidity, customer assets and the quality of returns made to FCA.

FCA’s intention when commissioning such a report is to gain that skilled person’s impartial insight into an issue on which, at the risk of simplification, it has been unable to come to agreement with the firm.

Thus the firm will have had ample warning that it has been unable to come to a meeting of minds with its supervisor, and that a Skilled Persons report may be in the offing.

Given the potentially high costs of these reports, and FCA’s incentive to use them, our advice to clients is that they should wherever possible seek to satisfy FCA’s concerns at outset. The cost of going down the s.166 route is high – both in terms of money and time. And the outcome of such a report is far from certain.

It is possible to forestall FCA’s commissioning of a s.166 report by going on the front foot and instructing third party consultants to report directly to you. This allows you to remain in control of events and is inevitably cheaper than a full-blown s.166 report.

Fulcrum Compliance have experience is assisting firms by providing such an impartial insight into their affairs. We have assisted clients both subsequent to and in advance of FCA visits or reports.

These have proven valuable to clients in providing the FCA with the re-assurance they seek. Call us if we can help you in this way.

Keep Liquid

BIPRU firms will, by the time they have read this, have completed their first FCA055 return. This confirmation of systems and controls governing liquidity oversight arrangements is due for submission by the end of January.

Firms with established prudential controls and policies will have had no difficulty in completing this return. Indeed the return itself is a relatively straight forward copy out of the relevant section of the FCA Handbook, requiring largely Yes or No answers.

If your firm is still evolving its liquidity policy, or if you are unsure how to complete this return, do not hesitate to call us.