1. Investment Forum Regulatory Update Round 1 - 2017

2. Learning Objectives
Identify the final changes to the capital adequacy requirements that take affect this year
Understand the forthcoming EU regulatory directives and their impact within the UK
Gain a general awareness of all other regulatory changes and those expected by the FCA

4. Ongoing Reviews RDR rules state:
A firm must not use an adviser charge which is structured to be payable over a period of time unless;
The charge is in respect of an ongoing service for the provision of personal recommendation or related services
So why remind you of this?

5. Ongoing Reviews – A Reminder
There are 3 reasons why this is relevant:
1. Thematic Reviews (TR) 14/21 & 15/12
2. Positive Compliance – Live & Local
3. Robo-Services

6. 1. Thematic Reviews Expectations Ectations
Is the nature of the service clear and relevant to the client. Do these provide a tangible value?
Are services delivered as agreed?
Does the firm have adequate resource to deliver the agreed level of service?
Is the cost of the service specific (in cash terms)?
Are client circumstances reviewed and is it evidenced?

7. Is a suitability report required?
The Review Process
This should include:
Changes in circumstances (health/wealth/job)
Changes in goals/needs & objectives
Review of the clients ATR and CFL
Review of tax/legislative changes
Review of the investment portfolio
Is a suitability report required?

8. Suitability Report
A report must be provided when recommending the client:
Acquire holdings (units)
Sell holdings (units)
This applies to:
Fund switches
Rebalancing
New definition of advice will include ‘holding existing units’ i.e. to do nothing

9. SimplyBiz Support - Annual Review
New client file document to demonstrate review of client circumstances
Pre-investment review letter
Post-investment review letter
This evidences your process and the review
Remember – remind the client of the ongoing cost

10. 2. FCA Positive Compliance Sessions
Ongoing services are subject to FCA reviews as part of Thematic work
Systems and controls should be in place to ensure they happen at the right time
Revisit all key information especially attitude to investment risk
Non-engagement with clients……what to consider

11. Client Non-Engagement
What is your process for dealing with clients that do not engage in the review process?
For how long would you continue to charge the client?
How is this shown in your management information (MI)?

12. 3. Robo Services?

13. Digitally Assisted Services
Bring about further efficiencies into your business
You can transact business without the liability of a personal recommendation
Save time for both you and your clients

14. Ongoing Service
It does not pay a ‘commission’ but the firm selects their charge
As it is not a personal recommendation the adviser charging rules do not apply
Where your firm charges an on-going fee consider the service provided. It may be a question for the future!

16. Consumer Protection on
Principles for Businesses (4)
‘A firm must maintain adequate financial resources’
Threshold Conditions (COND 2.4)
The matters which are relevant in determining whether a firm has appropriate resources include-
(a) the nature and scale of the business carried on, or to be carried on;
(b) the risks to the continuity of the services provided by, or to be provided

17. Capital Adequacy Changes
From 30th June 2017 minimum capital requirement increase to:
£20,000
Or if higher:
5% of investment income plus 2.5% of any mortgage and insurance income
Investment income -
£300,000 x5% = £15,000
Mortgage & Insurance income -
£300,000 x2.5% = £7,500
Capital Adequacy = £22,500

18. Subordinated Loans
At the same time the subordinated loan restriction takes effect
This restricts subordinated loan to 400% of capital and reserves, less goodwill
Any excess in the subordinated loan is used as a liability in the ‘own funds’ calculation

19. Subordinated Loan Example 1
Capital adequacy is £20,000
Subordinated loan of £20,000 with no goodwill
Capital and Reserves - £5,000
£5,000 x 400% = £20,000 (no sub loan liability)
C&Rs plus Sub Loan (£5,000 + £20,000) =
Own funds £25,000

20. Subordinated Loan Example 2
Capital adequacy is £20,000
Subordinated loan of £20,000 with no goodwill
Capital and Reserves - £4,000
£4,000 x 400% = £16,000 (£4,000 sub loan liability)
C&Rs plus Sub Loan (£4,000 + £20,000 - £4,000) =
Own funds £20,000

21. Subordinated Loan Example 3
Capital adequacy is £20,000
Subordinated loan of £20,000 with no goodwill
Capital and Reserves - £3,000
£3,000 x 400% = £12,000 (£8,000 sub loan liability)
C&Rs plus Sub Loan (£3,000 + £20,000 - £8,000) =
Own funds £15,000

22. Goodwill Remember goodwill is taken from capital and reserves
If goodwill is greater than capital and reserves the firm will not be able to meet its ‘own funds’
Consider removing the goodwill from the regulated firm
Speak to your accountant!

23. Subordinated Loans / Action
Review your financial position at the earliest time possible
Refer to C&TT 187
Where action is needed seek advice from your accountant
For any further support please contact our compliance helpdesk

25. The FSCS
Funding of the scheme was last reviewed in 2013 by FSA
Is it still working well for consumers?
Is it still working well for the firms that have to contribute?
We are now having a further review
We have FAMR to thank for this

26. The FSCS Why is it not working?
PII market is not competitive but cover is mandatory
PI cover has many limitations when liabilities arise
Disproportionate cost of protecting UCISs
High cost of funding and unpredictability of levies
Outcomes by The Ombudsman

27. FSCS – The Proposals Review the PII conditions of cover
Introduce product provider contributions
Have one class of intermediation for all activities
Move to risk-based levies
Uplift levels of cover for consumers
Build up a buffer to smooth the effects of funding

28. What next? Your Feedback
Do you think PII works and if not what would you change?
Do you think the current FSCS funding system works and if not……?
Is there anything else you would like us to consider?
Consultation closes on 31/03/2017
Please be patient!
Further consultation in 2018
Send us your feedback to C&TT 185

30. Notification to HMRC of offshore assets and income
Do any of your clients hold overseas assets or receive income?
You must notify them of their requirement to declare this to HMRC
Send them the HMRC notice with a covering letter containing prescribed text
See C&TT 186 for the notice and wording

31. Which clients to notify
Those clients you have dealt with throughout the year to 30/09/2016
And where you expect there to be a future relationship
Clients must be notified by 31st August 2017
Failure to take action could result in a fine of £3,000

32. Looking ahead Q1 – CP on Insurance Distribution Directive
Q1 – CP on redress for pension transfers
Q2 – Exam standards
Q2 – MiFID II rules

33. Learning Objectives
Identify the final changes to the capital adequacy requirements that take affect this year
Understand the forthcoming EU regulatory directives and their impact within the UK
Gain a general awareness of all other regulatory changes and those expected by the FCA