Learning & Development Regulatory Update Round 2 - 2017

Learning Objectives Understand the proposals for senior managers and certified persons, and how this affects your firm Gain an understanding to the proposed changes to the pension transfer rules Understand the continuing changes delivered through the Financial Advice Market Review and how this impacts services provided by firms

Senior Managers and Certification Regime

Background Following the financial crisis, Parliament tasked FCA to bring in a new regime of accountability This led to the introduction of the Senior Managers & Certification Regime (SM&CR) This replaced the approved persons regime for PRA regulated firms from March 2016 It is a requirement of the FCA to introduce this for all other regulated firms

Purpose of the SM&CR The regime aims to: - encourage staff to take personal responsibility for their actions - improve conduct at all levels - make sure firms and staff clearly understand and can demonstrate who does what We were told by FCA the rules for smaller firms would be ‘proportionate’

The Proposals Your firm will need to determine if it has to comply with the ‘core’ or ‘enhanced’ requirements Proposals for individuals: Senior Managers Certified Persons We need to compare this against the existing approved persons (AP) regime

Core or Enhanced? The firm All firms will be Core unless: A large CASS firm Assets under management over £50 billion Annual regulated revenue of £35 million We will focus on ‘core’ requirements

Senior Managers Each senior manager will be allocated a relevant Senior Management Function: SMF1 – Chief Executive SMF3 – Executive Director SMF9 – Chair (non-executive director) SMF27 – Partner Similar to existing controlled functions (CF) for approved persons

Senior Managers Senior management roles will also include: SMF16 – Compliance Oversight SMF17 – Money Laundering Reporting Officer* *not applicable to sole traders with no additional advisers

Senior Managers Each senior manager will be allocated: Statement of Responsibilities Prescribed Responsibilities Duty of Responsibilities These will be specific to each of the senior management roles

Statement of Responsibilities Senior Managers Statement of Responsibilities This will set out the responsibilities of the individual If there is a change to an individuals responsibilities it must be sent to the FCA Will it look like a job description? FCA to consult on producing a template

Prescribed Responsibilities Senior Managers PR Description 1 Performance by the firm of its obligations under the Senior Managers Regime – including implementation and oversight 2 Performance of the firm of its obligations under the Certification Regime 3 Performance by the firm of its obligations in respect of notifications and training of the Conduct Rules 4 Responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime 5 Responsibility for the firm’s compliance with CASS (if applicable) 6 Responsibility for ensuring that the firm’s governing body is informed of its legal and regulatory responsibilities 7 Responsibility for an AFM’s value for money assessments, independent director representation and acting in investors’ best interests Prescribed Responsibilities There are 7 prescribed responsibilities set out by the FCA These apply to all senior managers

Duty of Responsibilities Senior Managers Duty of Responsibilities To report or to stop breaches from happening FCA will determine if ‘reasonable steps’ were taken to prevent the breach It is always the Senior Manager that is ‘accountable’

Senior Managers - General All senior managers need to be approved by FCA On application a criminal records check must be submitted Grandfathering for existing senior managers – no approval needed Awaiting guidance on ARs

Pension Transfer Specialist Office managers? Supervisors? Certified Persons Applies to individuals who are not senior managers It is designed for individuals whose job means they can have a big impact on customers or the firm. This includes: Investment advisers Mortgage advisers Pension Transfer Specialist Office managers? Supervisors? Paraplanners?  

Certified Persons The firm approves the individual for the role not the FCA FCA will not register them! Removal from the FCA register of investment advisers Is this in the interests of firms or consumers?

SM&CR – General Requirements   First Tier – Individual Conduct Rules 1 You must act with integrity 2 You must act with due care, skill and diligence 3 You must be open and cooperative with the FCA, the PRA and other regulators 4 You must pay due regard to the interests of customers and treat them fairly 5 You must observe proper standards of market conduct Second Tier – Senior Management Conduct Rules SC1 You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively SC2 You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system SC3 You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of your responsibilities effectively SC4 You must disclose appropriately any information of which the FCA or PRA would reasonable expect notice Fit & Proper assessment of all SMs & CPs annually, inc. Non-Exec Directors New Code of Conduct principles Notification to FCA of any disciplinary action Regulatory references required for all SM&CR roles

SM&CR – General Requirements Regulatory References There will be a standard template for all firms Disclosure of information over previous 6 years Must include any disciplinary action Review references in light of new action arising

SM&CR – Individuals not covered Human Resources Receptionists PA / Secretaries Data Controllers Also: Cleaners Catering staff Security guards Vending Machine Staff

SM&CR – What Next FCA policy statement on transition of regimes Expected implementation late 2018 We will provide a range of templates SimplyBiz will provide a service to carry out these assessments and prepare annual statements and declarations

FCA consults on Pension Transfers

Proposed key areas of change Changing the starting assumption that all transfers will be unsuitable Replacing the TVAS with an ‘appropriate pension transfer analysis’ (APTA) Carrying out a pension transfer comparator Review of the pension transfer specialist arrangements

The starting assumption The current assumption is that all transfers will be unsuitable Replacing it with a statement that the adviser must prove a transfer is in the client’s best interests It will be assumed for most, it will be in the client’s best interests to retain safeguarded benefits

The starting assumption Are there any consequences to this? Change to the definition of advice Recording a pension scheme in the factfind Implication of retaining the existing scheme? Will the definition of pension advice need changing

Appropriate Pension Transfer Analysis This will be replacing the current transfer value analysis (TVAS) The APTA will include: an assessment of the client’s outgoings the role of the ceding and receiving scheme in meeting those income needs obtaining an understanding of the client’s potential cashflows consideration to death benefits on a fair basis Cashflow forecasts will be required for all cases

Pension Transfer Specialists Currently a PTS does not need to be a qualified financial adviser No requirement for a PTS to be appointed within a firm, as the role can be outsourced A change will confirm the PTS must sign off the case as suitable BUT - The responsibility for the advice will always remain with the firm advising the client

Suitability of pension transfer advice Since October 2015 the FCA have reviewed a total of 88 DB transfers where the recommendation was to transfer The results – • 47% were suitable • 36% were unclear • 17% were unsuitable

FCA High level findings Insufficient information about clients’ needs and personal circumstances Failing to consider the needs of the client alongside their objectives Inadequate assessment of risk the client is willing and able to take Introducer relationships and the lack of information sharing Lack of resource due to increase in demand

What next Generally consistent with the guidance SimplyBiz have produced in this area Some ‘tweaks’ made to our suitability reports Final rules due early 2018 Full guidance at that time by Policy and Pensions Technical

FAMR

FAMR: Insistent clients FCA published a consultation paper to formalise rules on dealing with insistent clients The rules will be based on what was originally guidance in Factsheet 035 in relation to pension reforms These rules will apply to any kind of business not just pensions transfers

Insistent clients An individual who has received a personal recommendation and chooses to do something other than follow the adviser’s personal recommendation. The file should evidence: The recommended outcome and the reasons for it The risks of the alternative course of action and why this is not recommended A clear distinction between the advice that is being acted against and any subsequent advice Through distinct suitability reports

Insistent clients Is there still any uncertainties? A range of scenarios Client best interest rules Liaising with the Ombudsman to seek their views

Finalised Guidance Firms providing streamlined advice models Factfind porting

Streamlined advice This includes both automated and face-to-face advice The guidance expects that many of these services will be automated Examples of the information required is given in various advice scenarios If your firm offers an automated advice service we strongly recommend you read this paper A term used to describe focused and simplified advice that provides a personal recommendation that is limited to one or more specific needs

Automated advice Automated advice is ‘advice’ It carries the same responsibility and liabilities as face to face advice It is important the nature of the service is accurately reflected

Fact Finds The paper discusses the potential for fact finds to be both; Portable Completed by the client(s) And for firms to rely on the information, provided: The firm is, or ought to be aware, of the information being out of date

Fact Finds The key regulatory purpose is to reduce cost MiFID II requires suitability reviews to be carried out at least annually Sending the fact find to the client to update, could streamline the review process Firms can rely on confirmation from client(s) and completion of a further risk questionnaire

General Data Protection Regulation GDPR

What is the General Data Protection Regulation (GDPR)? Harmonised law across EU Member States Becomes enforceable on 25 May 2018 Now is the time to start preparing

Changes from current DPA Same basic principles as current DP law, but strengthened Accountability New rights for individuals, and strengthening of existing rights Breach reporting Data Protection Impact Assessments Higher penalties for non-compliance Greater emphasis on documentation held by data controllers

What are we doing? Adviser Today Autumn 2017 Email 12 October 2017 Guide to GDPR coming soon… Training – step one of ICO advice Info from ICO: https://ico.org.uk/for-organisations/data-protection-reform/ ICO page has full details of 12 steps, plus an online checklist to see how you’re preparation is going

Looking Ahead Overview of the General Data Protection Regulation (GDPR) Update on FSCS review How MiFID II has been implemented

Learning Objectives Understand the proposals for senior managers and certified persons, and how this affects your firm Gain an understanding to the proposed changes to the pension transfer rules Understand the continuing changes delivered through the Financial Advice Market Review and how this impacts services provided by firms