8 - Financial advice - legal & regulatory enviroment Flashcards
FCA principles for business
- Integrity - firm must conduct its business with integrity
- Skill, care, and diligence - a firm must conduct its business with skill, care, and diligence.
- Management & control - firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
- Financial prudence - must maintain adequate financial resources.
- Market conduct - observe proper standards of market conduct.
- Consumer interest - pay due regard to interests of customers and treat them fairly.
- Communication with clients - pay due regard to the information needs of clients and communicate information in a way that is clear, fair, and not misleading.
- Conflicts of interest - manage conflicts of interest fairly.
- Customers: relationship of trust - take reasonable care to ensure the suitability of advice & discretionary decisions for customers who rely on its judgement.
- Clients assets - arrange adequate protection for clients assets when responsible for them.
- Relationship with the regulator - open and cooperative and disclose anything the regulator would reasonably expect notice of.
- Consumer Duty - Firms must act to deliver good outcomes for customers.
FCA’s strategic objective - operational objectives
Integrity
Competition
Consumer protection
CD Cross cutting rules
- Firms must take all reasonable steps to avoid causing foreseeable harm.
- Firms must take all reasonable steps to enable customers to meet their financial objective.
- Firms must act in good faith towards customers.
CD Outcomes
- Consumer understanding
- Products and services
- Customer service
- Price and value
Fair treatment of customers
Longstanding regulatory principle that places the customer at the centre of the business.
Based on principle 6 & enforced by COBs 2.1.1 - a firm must act honestly, fairly & professionally in accordance with the best interest of its clients.
Vulnerable customers
Vast majority will be vulnerable at some point in their lives - transitional vulnerability.
Characteristics categories to define vulnerability
1. Health
2. Life events
3. Resilience
4. Capability
Health vulnerability
Physical disability
Severe or long term illness
Hearing or visual impairment
Mental health condition
Addiction
Low metal capacity or cognitive ability
Health vulnerability
Physical disability
Severe or long term illness
Hearing or visual impairment
Mental health condition
Addiction
Low metal capacity or cognitive ability
Life event vulnerability
Retirement
Bereavement
Income shock
Relationship breakdown
Domestic abuse
Caring responsibilities
Other circumstances such as leaving care, seeking asylum, modern slavery.
Resilience vulnerability
Inadequate or erratic income
Over indebtedness
Low savings
Low emotional resilience
Resilience vulnerability
Inadequate or erratic income
Over indebtedness
Low savings
Low emotional resilience
Capability vulnerability
Low knowledge or confidence managing finances
Poor literacy or numeracy skills
Poor English language skills
Poor or non existent digital skills
Learning difficulties
No or low access to help or support
ESG
Environmental, social and governance.
“Green finance or socially responsible investing or sustainable investing”
Achieving positive consumer outcomes means making appropriate enquiries about clients ESG preferences.
Ethical behaviour - CII code of ethics
- Comply with the code & all relevant laws and regulations.
- Act with the highest ethical standards and integrity.
- Act in the best interest of each client.
- Provide a high standard of service.
- Treat people fairly, regardless of age, disability, gender reassignment, pregnancy & maternity, marriage and civil partnerships, race, religion & beliefs, sex and sexual orientation.
The advice process - 4 broad stages
- KYC
- Analysis of needs
- Presentation of recommendation
- Ongoing service
COBs Disclosure requirements
Adviser status - restricted or full advice
Service to be provided, i.e. in one area or full advice
Cost of the advice - at outset and on an ongoing basis
COBs required behaviours (4) and firm specific behaviours (5)
Mandatory behaviours
4 main areas
- Disclose status, service & costs
- Establish KYC requirements
- Product or service disclosure
- Cancellation rights & AML
Firm specific requirements
- Full FF rather than limited advice
- explaining how the service proposition is unique
- elements of the firms disclosure they must emphasise
- how they use a specific risk tool to establish ATR
- positioning the use of cash flow
Requited and firm specific behaviours
Mandatory behaviours
4 main areas
- Disclose status, service & costs
- Establish KYC requirements
- Product or service disclosure
- Cancellation rights & AML
Firm specific requirements
- Full FF rather than limited advice
- explaining how the service proposition is unique
- elements of the firms disclosure they must emphasise
- how they use a specific risk tool to establish ATR
- positioning the use of cash flow
Other non mandatory areas might include soft skills:
People skills
Questioning- open or closed
Understand the clients needs in terms of pace & detail/complexity of the meeting
Dealing with client questions
Clarity of explanations
Ability to build rapport
Role of T&C supervisor
Monitor conduct and the fair treatment of customers.
Improve and develop the skills of the advisor.
T&C supervisor - 3 main elements of the observation process
- Pre meeting
- Jointly agree what they want to get out of the observation
- Ensure the adviser knows what is being observed and the required standard
- Agree how the supervisor will be introduced and in what circumstances they will intervene
- confirm what the adviser hopes to achieve with the client
- agree time, location etc.
- Supervisor explain what happens after observation
- Previously identified development needs regarded to see if they have been resolved
- where recommendations being made to the client, they should be reviewed for completeness.
During the meeting
- introductions as agreed
- remain unobtrusive
- observe and record evidence on observation aid
- intervene where asked or if necessary
Post meeting
- Ask adviser for their views - self appraisal
- Provide feedback by evidence
- Reconcile differences
- Agree development plan
3 stages of money laundering
- Placement of illicit cash through financial institutions - banks, building societies, into collective investment schemes.
- Layering - series of transactions designed to conceal the origin of the illicit money. False names, ficticious transactions, swift movement of money.
- Integration - finally converted into the proceeds of a legitimate business.
Personal responsibility in relation to AML
Knowingly assisting in laundering crimes - up to 14 years imprisonment & or a fine
Failure to report suspicion of money laundering - upto 5 years in prison & or a fine.
Tipping off - upto 5 years imprisonment and or a fine.
Money laundering & terrorist financing regulations 2019 (MLR 2019)
MLR 2019 introduced a:
- a wider definition of high risk factors to include where a party is based in a high risk country or the beneficiary of a life policy.
- strengthening due diligence relating to the beneficial owner of corporate clients
- requirement for regulated firms to report to Companies House any discrepancies between the information they hold on their customers compared to Companies House records.
Money laundering & terrorist financing regulations 2019 (MLR 2019)
MLR 2019 introduced a:
- a wider definition of high risk factors to include where a party is based in a high risk country or the beneficiary of a life policy.
- strengthening due diligence relating to the beneficial owner of corporate clients
- requirement for regulated firms to report to Companies House any discrepancies between the information they hold on their customers compared to Companies House records.
