Chapter 6 - Principles & Rules Set Out In The Regulatory Framework

Question 1

Regulatory authorisation - General prohibition & punishment for breaking

Answer 1

General Prohibition - rule that any authorised or exempt person can carry out regulated activities.

A breach of this can be punished by max 2 years and/or fine

Question 2

Regulated Activities - Part 2 of RAO- list of activities and that need auth

• Banking (2)
• Home Finance (4)
• Insurer (2)
• Scheme Operator (2)
• Investment Intermediary (6, all finish with ‘inv’)
• Insurance Intermediary (4)
• Investment Management (2)
• Credit related (4)

Answer 2

Part 2 RAO lists specified activities that require authorisation.

• Banking - accepting deposits and issuing electronic money.
• Home finance - advising, arranging, administering and agreeing to do home finance activists.
• Insurer - carrying out contracts as principal and assisting in admin and performance of insurance contract.
• Scheme operator - establishing, operating or winding up CI or stakeholder pension schemes.
• Investment Inter - advising on inv, giving basic advice, arranging deals, managing inv, dealing and safeguarding.
• Ins Inter - advising on inv, arranging deals, dealing as agent and assisting in performance and admin of insurance contract.
• Invest Management - managing investments, managing UCITS and AIF.
• Credit related - entering into regulated credit agreement as lender, credit broking, debt counselling and debt admin.

Question 3

Specified Investments - where defined/what a part of and what does it include (16)

Answer 3

• Deposits
• electronic money
• rights under contract of insurance
• shares
• government and public securities
• certificates representing certain securities
• units in CI scheme
• rights under pension scheme
• options, futures and contract for differences
• life policies
• non-investment insurance contracts
• right under reg mortgage contracts-
• rights under home reversion plan
• rights under home purchase plan
• SRB agreements
• credit and consumer hire agreement

Question 4

Exempt Status - Appointed reps what are they, what is authorised person known as, what can appointed reps of MiFID firms be known as, insurance companies & AR’s and Introducer AR’s (what are they).

Answer 4

Appointed Representatives - contract with authorised person that accepts responsibility for its activities. The authorised person in this relationship is known as the principal (e.g Quilter is our principle) and they are liable for any slip ups of appointed rep.

Appointed reps of MiFID investment firms may also be known as tied agents.

Many insurance companies have various AR’s who can be viewed as sales force e.g might be specialist firm selling life insurance.

Introducer Appointed Rep - cannot give advice and restricted to making introductions and distributing advertisements.

Question 5

Exempt Status - designated professional bodies (if you are a member… and examples x2), what are these firms known as, authorised professional firms (why do they require auth) & other bodies that are exempt (5)

Answer 5

Firms that are members of designated professional bodies (DPB) do not need authorisation for regulated activities which are incidental to their profession e.g solicitor would not need auth for helping client make claim on life policy or accountant for advice on taxes on investments. These firms known as exempt professional firms (EPFs).

However, if wanted to advice on life policies and arrange investments, they would need to be authorised by FCA as authorised professional firms (APF).

Other bodies that are exempt are - BoE, ECB, central banks of EEA, local authorities and various Gov bodies.

Question 6

Applications - Part 4A permission (what is it), types of application form specific to who

• Retail Intermediary (4)
• Wholesale Investment firm (3)
• Insurance firm (3)
• Consumer credit firm (3)
• other provider and deposit (7)

Answer 6

Part 4A permission - must apply to appropriate regulator for authorisation if they want to carry out regulated activity.

1 - financial adviser, home finance inter, insurance inter and travel insurance inter.
2- securities firms, adviser of wholesale funds & investment management firms
3 - insurance special purpose vehicles, Lloyd’s managing agents and insurers.
4 - lenders, brokers or consumer hire.
5 - bank, mutual, home finance provider, personal pension provider, credit union, claims management or electronic money issuer.

Question 7

Applications - new insurance firms (PRA & FCA), must be able to…(2), statutory time limit standards, if app is successful? And formal part of Part 4A (3)

Answer 7

New insurance firms must apply to PRA for authorisation and they will determine if they meet threshold conditions whilst FCA will see if they meet conduct requirements. Must be able to meet minimum standards and demonstrate they are fit and proper.

Regulator has to make decision within statutory time limit standards - 6 months for complete, 12 months for not.

If successful, regulator will write to firm confirming authorisation and enclose Scope of Permission notice. This is formal part of Part4A that sets out when permission starts, what reg activities that can do and any requirements or limitations included.

Question 8

Applications - change of legal status - what must apply for and HM Treasury amendment.

Answer 8

If changing legal status, must apply for authorisation however this has been amended by HM Treasury so that partnerships or unincorporated associations can carry on regulated activities even if another partner resigns or dies.

Question 9

Responsibilities of regulated firms - controlled functions approval and temp basis & authorised firms responsibilities, compensation when and when not and referring compliant.

Answer 9

Authorised firm must ensure individuals carry out controlled functions are approved. An individual without approval can carry out on temp basis, up to 12 weeks, in order to cover illness and holiday.

Authorised firm responsible for advice given by representative and if breaches FSMA or FCA rules then they are liable to pay compensation if loss sustained because of advice. Will not have to compensate if loss is not due to advice e.g. stock market crash. If they don’t pay compensation when breaching rules, client can refer to FOS.

Question 10

Senior Managers & Certification Regime (SM&CR) - who applies to (3), main aims (2), as part of this SM&CR aims to (2)

Answer 10

SM&CR applies to banks, insurers and solo FCA reg firms as of Dec 2019. It aims to reduce harm to consumers and strengthen market integrity through making individuals more accountable for conduct and competence.

As part of this, SM&CR aims to;

• encourage staff to take responsibility for their actions
• ensure firms and staff clearly understand and demo where responsibility lies.

Question 11

Approved Person Regime - distinction for authorised and approved person, controlled functions are those that involve… (3) and five main groups of FCA controlled functions.

Answer 11

Introduced by FSMA and makes following distinction;

• Authorised person - business that carries on regulated activities e.g. providing investment advice. Can be company, partnership or sole trader.
• Approved person - individual who has been approved to carry out one or more of controlled functions in the business.

Individuals undertaking a controlled function must be approved and registered. Controlled functions are those which involve;

• significant influence on conduct of an authorised persons affairs.
• dealing with clients in connection to regulated activities.
• dealing with the property of clients in connection to reg activities.

Five main groups of FCA controlled functions with four being significant influence functions.
- Governing, required, systems and controls, significant management and customer-dealing

Question 12

Customer-dealing function (controlled functions) - can be any of the following… (7), new name for controlled functions under SM&CR & what divided into (2)

Answer 12

• Advising, arranging or dealing on investments (unless basic advice).
• Advising clients solely in connection with corporate finance business.
• Advice on pension transfers, conversions or opt outs.
• Giving advice about membership of Lloyd’s syndicate.
• Dealing and arranging investments that are governed under COBS.
• Acting and carrying functions connected with investment manager.
• Acting as bidder representative.

Controlled functions replaced by senior management functions under SM&CR which are divided into executive functions and oversight functions.

Question 13

Who individual registration is necessary for… (7)

Answer 13

• Directors and chief executives
• Actuaries of insurance companies
• Money laundering reporting officers
• Heads of compliance
• Senior managers
• Client investment advisers
• Discretionary Investment managers

Question 14

Individual Registration system disciplinary powers for FCA & PRA - approval, when disciplined and when guilty of misconduct?

Answer 14

• Approval can be withdrawn if no longer fit and proper for that function.
• Will only discipline where behaviour was deliberate or falls below standard. Won’t discipline for vicarious liability (employee held responsible).
• Guilty of misconduct if fail to comply with statement of principle or FSMA, FCA/PRA rulebook.

Question 15

SM&CR - who it applies to as of dec 2019 (5), Financial Services Act 2013 made to… (2) and will make it easier… & key aims (6)

Answer 15

It applies to banks, building societies, credit unions, largest investment firms (PRA reg) and foreign banks operating in the UK.

Individual accountability rules have been changed via Financial Services Act 2013 - made to improve professional standards and culture within the banking industry. The rules will make it easier for firms and regulators to be clear who is responsible for what with senior managers being responsible for failings that fall within their areas.

Key aims of SM&CR:

• encourage greater clarity of responsibilities.
• improve corporate governance through clearer accountability of decision making.
• Ensure responsibility is clear.
• Identify who really runs the firm.
• Give FCA sound framework against which to take enforcement action.
• Place responsibility of authorising individuals in significant harm functions on the firm rather than FCA.

Question 16

Key features of SM&CR - Senior Managers Regime - who does it focus on, firms need to… (4) & Stat duty of resp (what senior managers need to do).

Answer 16

Focuses on those with the most senior roles and firms need to:

• ensure each senior manager has Statement of Responsibilities which sets out areas they are personally accountable for.
• introduce firm responsibilities map.
• Ensure all senior managers are pre-approved before carrying out their roles.
• Ensure they are assessed for Fitness and Propriety annually.

Statutory duty of responsibility - senior managers must take steps that is reasonable for them to take in order to prevent regulatory breach.

Question 17

Key features of SM&CR - Certification Regime - who does it apply to in firm, what do they need to do with certified individuals (3) and remit + evidence

Answer 17

Applies to material-risk takers & staff who pose significant risk of harm to firm or clients. Firms need to identify all certified individuals and then:

• assess them as fit and proper.
• issue a certificate to each of them.
• have procedures in place for assessment of the above at least annually.

Now firms remit to confirm that individual is fit and proper and not FCA’s. Need to have sufficient evidence in place to support this internal certification.

Question 18

Key features of SM&CR - Conduct rules - who applies to, what firms use ensure

Answer 18

High level rules that apply to all staff - firms must ensure that staff are aware of these rules and how they apply to their role. The other two are also subject to this.

Question 19

SM&CR - Classification - limited scope (subject to), core (who and subject to)

Answer 19

Applied in a proportionate manner through three categories:

• Limited scope firms - currently benefit from limited application of Approved Persons Regime and will be subject to reduced set of requirements.
• Core firms - do not qualify as limited or enhanced and subject to baseline regime (pared back version of SM&CR for banks)

Question 20

SM&CR - Classification - Enhanced firms - who, subject to, examples (6) & additional requirements

• Add Senior Management functions
• Add Prescribed responsibilities
• Overall responsibility requirement
• Responsibilities maps
• Handover requirements

Answer 20

Enhanced firms - c.350 of largest and riskiest firms who will be subject to additional requirements above core more akin to requirements for banks. Examples are:
- significant IFPRU firms, large CASS firms, asset managers with assets of £50bn or more, firms with total intermediary business worth £35m, firms with annual revenue from credit lending of £100m plus and mortgage lenders with £10k or more outstanding.

Additional requirements for firms include;

• Additional senior management functions - broader set of roles specific to larger firm that require registration.
• Add prescribed responsibilities - functions associated with wider roles that need to be allocated to seniors manager.
• Overall responsibility requirement - like approved person requirement - senior manager should ensure responsibilities given to competent people.
• Responsibilities maps - Organisation chart that sets out who performs what functions.
• Handover requirements - SM leaving role must provide adequate notes of key topics and current matters.

Question 21

SM&CR - Allocation & documentation of resp - responsibilities framework operates… (7)

Answer 21

Firm must ensure all documents are consistent, kept up to date and maintained and must check there are no gaps in responsibility or accountability. Responsibilities framework operates as follows;

• Senior managers must be allocated to relevant prescribed resp.
• Enhance firms - must ensure that SM has overall resp for every activity, business area and management function.
• Prescribed resp should be allocated to individuals performaning certain SMFs.
• SM must have statement of resp which must be pre-approved by FCA and should set out prescribed and any other resp.
• SoR must be concise, factual and self-contained.
• SoR must be updated and resubmitted whenever there is a change.
• Enhanced firms - SoR accompanied by Resp Map, which is designed to reflect governance and management whilst ensuring no gaps in accountability.

Question 22

SM&CR - Duty of Responsibility - SM’s duty and misconduct.
Regime of branches - who apply to, euro banks split (3) & final rules (2)
Renumeration - changes is code to encourage (2)
Whistle-blowing - new rules to… (2) and applies to (3)

Answer 22

SM’s have duty of responsibility - can be found guilty of misconduct if FCA can prove SM responsible for regulatory breach. Other aspects of regulation which impact SM’s are;

The regime of branches - apply to foreign banks but tailored for different governance structures. European banks - resp split between FCA, host state reg and home state reg. Final rules relate to certification and conduct rules.

Renumeration - changes to renumeration code to encourage effective risk management and better decision making in regards to conduct (i.e not motivated by commission).

Whistle-blowing - new rules to strengthen WB systems and controls and to help enabling people to speak up. Apply to deposit-takers, Solvency 2 insurers and PRA designated investment firms.

Question 23

Appointed Representatives - overview (exempt & principle), limited activities (2), Full AR (advice on, dual status & CMA) & Introducer AR (what can they do)

Answer 23

Appointed reps are exempt under FSMA as it has contract with authorised person known as the principal. Principal takes full responsibility for all their actions related to regulated business.

AR are permitted to undertake limited activities, typically;
- advising on investments and arranging deals in investments.

Full AR’s are able to give advice on investments/home finance. Cannot be AR if at the time of appointment it is also an authorised person - no dual statuses. Cannot hold client money or assets.

IAR can only make introductions or distribute advertisements on behalf of principal.

Question 24

Appointed Reps - Appointment - before appointing they must… (3), approval (who-2), AR advisers (subject to), in writing and FCA notification.

Answer 24

Before firm appoints AR they must;

• ensure that appointment does not prevent firm from meeting Threshold conditions.
• ensure the person is suitable to act for the firm and has no close linked that would effect effective supervision.
• ensure they (themselves) have adequate controls over persons regulated activities that the firm is responsible for and is ready to comply with other requirements.

Directors or SM’s of AR must be approved & advisers appointed by AR’s subject to same rules and controls as advisers that are appointed by principal firm.

Principal must accept responsibilities in writing and must be signed by both parties until the AR can commence regulated activity. Principal must notify FCA no later than ten days appointment.

Question 25

Appointed Reps - Multi Principals - investment business, mortgage & Insurance (agreement & complaints).
Termination - notification and permission

Answer 25

Investment business = only one principal firm.

Mortgages - may have different principal for different classes of business (e.g standard vs equity release).

Insurance - can have number of principals. If have multiple, must get multi principal agreement from each principal. Must be one lead principal will be responsible for handling complaints irrespective of where it comes from.

Termination - if contract terminated, principal will notify AR in writing and AR will no longer be permitted to conduct regulated business. FCA notified within ten working days.

Question 26

Record keeping - standard periods (3), regular returns of… (4), why reporting rules are important and what reports can cover (6)

Answer 26

Indefinitely - pension transfers, opt outs and FSACV.
5 Years - Life policies and pension contracts - promotions 6 years
5 Years for everything else accept non MiFID firms 3 years.

FCA requires regular returns including

• details or shareholding and control (at least 10%) of limited companies
• information about people and firms that they have close links with such as subsidiary and sister companies.
• financial resources
• complaints

Reporting rules are important as they allow regulators to build picture of activity in regulated firms and monitor. Reports can cover any of the following;

• annual accounts and financial statements
• amount held in client bank accounts
• value of client assets in a discretionary portfolio managers possession.
• number of staff roles in the firm
• types of business being undertaken
• complaints and persistency statistics.

Question 27

Persistency - definition, what the rules apply to and frequency of reporting.

Complaints - how often & broken down, what must they report (3), what does it allow FCA to do and indication

Failure to submit (3)

Answer 27

Persistency - percentage of insurance companies already written policies remaining in force without lapsing or being replaced by another. Rules apply to both single and regular premium life contracts. Product provider must report persistency figures over the first four years of contracts annually then FCA take aggregate.

Complaints - must twice a year submit stats to do with complaints received broken down according to category of product. The must reports number of complaints closed within 4 weeks or less, eight weeks or less and total number outstanding. Allows FCA to keep close eye on number of complaints and alerts them to problems and firms should monitor as an indication of conduct levels.

Firms failure to submit returns could have enforcement, authorisation removed and fines if simply given late.

Question 28

Notification requirements - principle 11 - what is it and guidance and rules on FCA notification (3)

Answer 28

Principle 11 - firm must deal with regulators in open and cooperative way and disclose information that the regulator would expect to notice. Certain rules and guidance on what FCA expect;

• told immediately if matter could have significant regulatory impact, serious fraud or crime, major rule breach or insolvency.
• Core info changes such as name, address & legal status should be provided in good time.
• If accidentally given incorrect info to FCA, must notify immediately.

Question 29

Training and Competence - designed to…
Recruitment - must take into account (4) and what they need to identify and training (4)
Competence - dealing with retail clients, records of training kept and who does it include (2)

Answer 29

TC rules are designed to ensure employees are competent and properly supervised. Must be regularly reviewed.

Recruitment - must take into account knowledge, skills, current role and previous activities and training including qualifications. Must identify training needs. Training must take into account changes in market, products, legislation and regulation.

Competence - cannot deal with retail clients unless passed regulatory module of approved examination and have adequate level of knowledge and skills. Records of training must be kept for;
- 3 years for non MiFID firms or 5 years for MiFID
- indefinitely for pension transfer specialists.
Includes AR’s & self-employed.

Question 30

Training and competence

• Appropriate exams - specialist for… (3), Level 4 exam (what are they, how long to complete and attempts) and Level 3 (who for)
• Reporting - responsible for notifying FCA if… (4)

Answer 30

App exams - Must take further exams for specialist areas such as discretionary management, occupational schemes and equity release. Investment advisers have 2 years to complete level 4 exams (threshold requirement for advising on investment products) and firms can limit attempts. Mortgage advisers must obtain level 3 qualification.

Reporting - firms are responsible for notifying FCA for any of the following;

• adviser no longer considered competent.
• Adviser failed to attain appropriate qualification in time limit.
• Adviser failed to comply with Statement of Principle for their controlled function.
• Adviser performed regulated activity before competent and without supervision.

Question 31

Combatting money laundering and financial crime - 3 stages of money laundering + explanation and example.

Answer 31

Placement - illicit cash turned into payments from respectable financial institutions through bank deposits, life policies and packaged investments.

Layering - involves series on transactions intended to conceal origins of dirty money. Using false names and fake transactions, cash moves through bank account into an insurance policy or investment surrendered early to associates who then engage in currency transactions and purchase of bearer bonds which provides security for legitimate loans.

Integration - process in which laundered money is finally converted into legitimate business or investment portfolio.

FS businesses are most likely to be used for first two stages - e.g bank account opened in false name then withdraw proceeds to buy investment bond which is surrendered early and then transferred to another account overseas.

Question 32

Combatting money laundering cont - how do they operate (3), Proceeds of Crime Act (2002) (offences, 3) & another offence + regulated sector (5) and who to disclose to

Answer 32

Operate using individual and company names, can do many small single premiums or regular contributions and can use pension contributions.

Proceeds of Crime Act (2002) - initial UK statute fighting against money laundering and creates a number of offences;

• conceal, disguise, convert or transfer criminal property or remove it from UK.
• to be in an arrangement to help acquisition, retention, use or control of criminal property.
• acquire, use or possess criminal property.

Also offence to fail to disclose known or suspected cases in regulated sector, reg sector includes;

• deposit taking
• money changing
• dealing, arranging, advising on or managing investments.
• arranging and advising on home finance and general insurance
• contracts of long term insurance

Disclosure must be to NCA and it is an offence to tip off money laundering suspect.

Question 33

Money Laundering Regulations & JMLSG Guidance

• JMLSG - what to they do and made up of who?
• MLR - risk based approach - what it means for firms

Answer 33

JMLSG - provides guidance on interpretation of regulation and made up of leading trading associations under chairmanship of BoE.

MLR 2017 emphasises a risk based approach to firms in carrying out their regulated activities. This means that firms must form a view on risk presented by clients and situations and assess compliance work they need to carry out.

Question 34

MLR & JMLSG - other areas of regulation

• Policies & procedures - why put in place, risk based approach (6) who appointed and FCA expectations of for them (3)
• Customer Due Diligence (CDD) - what does it involve (2) and checks must be carried out when… (4), further CDD requirements (when & what) &Simplified Due Diligence

Answer 34

1 - policies and procedures must be put in place to minimise risk of money laundering or terrorist financing. Must be risk based and should take into account due diligence, reporting, record keeping, internal control risk assessment and compliance monitoring. Money laundering reporting officer needs to be appointed and is central contact for suspicious activity - must be based in UK, LOA and access to resources and information within firm.

2 - this involves verifying identity of client and getting info on nature and purpose of business. CDD checks must be carried out when;

• regulated firm establishes business relationship.
• carries out an occasional transaction.
• suspects money laundering
• if there are doubts of integrity of previously obtained info

Further CDD requirements if client is not present such as additional ID docs - also case for PEP.

SDD can be used if business determines relationship or transaction present a low risk.

Question 35

MLR & JMLSG - other areas of regulation

• ongoing monitoring
• ID procedures - two stage process and acceptable docs (3), difficulties
• Staff awareness and training
• Enforcement - powers (2), civil pens

Answer 35

Ongoing monitoring - must monitor ongoing relationships and scrutinise transactions to ensure they match knowledge of client and risk profile.

ID procedures - two stage - name, address & DOB and verifying through independent docs. Acceptable docs are;

• Gov issued doc with photo such as passport or driving licence
• if no photo, then second doc such as utility bill or bank statement required.
• for firms, must obtain docs that are relevant e.g. company registration number

Any transactions difficulties should be reported to MLRO.

3 - staff must be aware of relevant legislation and regulation. Must receive training on ID verification and how to deal with suspected money laundering. Retraining must be carried out at relevant intervals.

4 - powers include right to enter premises and take copies of docs. Authorities may give civil penalties - partners and directors are personally responsible they may be fined or imprisoned for two years.

Question 36

Other areas of regulation & Civil Recovery

• Suspicious activity reporting - examples (3)
• Firm annual reporting (straightforward)
• record keeping - how long and other records
• Registration
• Protection measures - NCA & outside investigation
• Civil recovery - Asset Recovery Agency (what is does and powers)

Answer 36

SAR - firms appoint MLRO who make reports to NCA. Examples include

• client using inters to protect or hide their identities or involvement
• sudden significant improvement in a clients finances but unable to explain why.
• money paid to third party that appears to have no connection with client.

Firm annual reporting - self explan

Record-keeping - must keep record of ID verification for 5 years after end of client relationship or 5 years from when transaction completed. Should also keep records of reports and decisions regarding suspicious activity.

Reg - must register with appropriate money laundering supervisory agency and authority can refuse registration.

Protection measures - must protect whistle blower. NCA needs to know who they are to get further info in future investigations. Outside investigation, names concealed and not called upon to give evidence.

Civil recovery - ASA confiscates proceeds from criminal activity and has powers to obtain information in relation to life policies and investments. Can tax profits or gains from criminal proceeds.

Question 37

GDPR - changes (2), who applies to (2), applies to,

• Principles (data should be, 6)
• Lawful Processing
• Consent - must be… (5), documented (can & cannot, 1-3) & withdraw

Answer 37

GDPR - harmonised data protection laws across EU and increased penalties for non compliance. Applies to controllers and processors with significant legal obligations on the latter. It applies to a wide range of personal data to reflect changes in technology and way firms collect information.

Principles - sets out main responsibilities for firms and data should be;

• processed lawfully, fairly and transparently.
• collected for specific and legitimate purposes.
• adequate, relevant and limited to what’s necessary.
• accurate and up to date.
• kept for no longer than necessary
• ensure appropriate security

Lawful processing - Firms must determine lawful basis of processing data. Lawful basis has effect on their rights.

Consent - must be a freely given, specific, informed and unambiguous indication of wishes and verifiable. Must be some form of positive opt in and cannot be taken in form of silence, preticked boxes or inactivity. Need to provide simple ways to withdraw consent.

Question 38

GDPR

• Rights (9)
• Accountability and Governance - practice tools (2) + how they affect firm (2)
• Breach notification - report to (2), what comes under breaches (4) and could lead to (4)
• Transfers of personal data

Answer 38

Provides the following rights;
- right to… be informed, access, rectification, erasure, restrict processing, data portability, object and rights in relation to automated decisions and profiling.

2- enhanced accountability and governance through mandatory practice tools such privacy impact assessment and privacy by design measures. These measures should minimise risk of breaches. May cause an increase in policies and procedures for some firms to meet good governance.

3- Must report any breaches of data to clients and ICO. Breaches more than just losing personal data and includes
- destruction, alteration, unauthorised disclosure and access to
ICO should only be notified if breach can result in risk to rights and freedoms and if left unaddressed could lead to;
- discrimination, damage to reputation, financial loss and loss of confidentiality.

4- GDPR imposes restriction of transfer of personal data to outside the EU in order to ensure level of protection.

Question 39

Complaints rules and procedures - what is a complaint, when supply procedures, investigating complaint, client interaction (notice, responses etc), senior individual (why in charge and record keeping) & record keeping and stats

Answer 39

A compliant is expression of dissatisfaction at either financial loss, material distress or material inconvenience. A firm must supply complaints procedures at or immediately after point of sale.

FCA rules require firm to investigate whether complaint should be upheld and what action or redress may be appropriate. If other firm responsible, they can refer complaint to them and inform the complainant.

Must send complainant written notice of acknowledgment and must keep them informed throughout the process - should be final response after 8 weeks. Final response should include FOS referral and any redress payable - if disagree, can refer this to FOS.

Firms need to have senior individual in charge of complaints as FCA believes this will lead to significant influence in firm and help drive changes where failures are leading to complaints. Must keep record of analysis and decisions made by senior personnel in relation to complaints. Firms need to establish root cause.

Records kept for 5 years for MiFID firms and 3 years for non. Must supply complaints statistics twice a year.

Question 40

FOS - eligible complainants (7), before going to FOS…, legal proceedings and refer times (3)

Answer 40

Free, independent and impartial service and only deals with eligible complainants how are;

• consumer
• micro-enterprise with fewer than ten employees and turnover of no more than £2m
• charity with annual income of £6.5m
• trustee of trust with value less than £5m
• consumer buy to let
• small business with an annual turnover of less than £6.5m
• guarantor

Before taking complaint to FOS, they should have exhausted the firms internal complaints procedure and still be dissatisfied with the outcome. Any legal proceedings must be withdrawn prior to referral as FOS do not get embroiled with legal proceedings.

They can refer their complaint in the earliest of;

• six months of the date of firms final decision letter.
• six years after the event complained about.
• three years after complainant knew that they had cause to complain.

Question 41

FOS cont… - referral dates expired (time-bar, review & exceptional circumstances), information requests, respond times, appeals, reaching decision based on… (4), and law bound

Answer 41

Once the referral dates have expired, firm can object to FOS taking action due to time-barred but can review if firm agrees to it. However, they can consider outside timeframe complaints in exceptional circumstances (pension transfers & opt out).

FOS can require parties to give information and all authorised firms must cooperate. They have 90 days to respond to the complainant and handled by caseworker or adjudicator. Both parties have right to appeal decision at which point it is referred to the panel of ombudsmen who make final decision.

They will reach decision based on what is fair and reasonable, taking into account law, FCA rules and good industry practice. Not bound to law and evaluate each case on its merits - this is to ensure clients are treated fairly and law is not used to avoid paying fair claims.

Question 42

FOS cont 2 - Redress
Money reward - what is it and max rewards (3)
Directions reward - what is it and includes (3)
Decision notification, response and how funded (2)

Answer 42

Redress awarded in two ways;

Money reward - instructing firm to pay client for any financial losses they have suffered due to problem. Max reward;
- £350k + interest, costs & interest on costs for complaints about actions or omissions that occurred on or after 04/19
- £160k + as above that occurred before 04/19 but referred after this date.
- £150k + as above for before 04/19.
Can recommend higher figure if appropriate but not binding for firm.

Directions Award - telling firm what actions it needs to take to put things right for client and could include;

• paying an insurance claim that was previously rejected.
• calculate and pay redress according to approach set by regulator.
• apologies personally to client.

The decisions along with reasons must be notified in writing to both parties and must be responded to within specified timeframe. If accepted, it is binding, if not vice versa and can take to court. If ignored, taken as rejected.

FOS is funded by levy paid by all firms and case fee payable by firm to which complainant relates.

Question 43

FSCS - why established
Protected Deposits - what are they
Protected Insurance Contracts - where issued
Protected investment business is… (3)

Answer 43

Established under FSMA to compensate claimants when authorised persons cannot. Must be made by an eligible claimant for protected deposits, protected insurance contract and protected investment business.

Deposits - deposits at UK branches.

Insurance contracts - issued in UK, EEA State, Channel Islands or Isle of Man.

Investment business is;

• any investment business .
• activities of manager or trustee of unit trust.
• activities of authorised corp director or depository of an OEIC (if UK office).

Question 44

FSCS - who is eligible and who’s not (6), default (how determines and if yes) & limits;
Deposits, investments, LT insurance, general insurance and home finance mediation.

Answer 44

In order to get compensation, claimant must be eligible. An eligible claimant is any person who is not;

• overseas financial services institutions
• pension and retirement funds
• supranational, government and central admin auth
• provincial, local, regional and municipal authorities
• large companies, partnerships and mutual associations
• alternative investment funds

FSCS must determine if firm in default and unable to satisfy protected claims against it. Does this by requiring firm to produce information demonstrating this and power extends to insolvency practitioner. If it judges that they are in default, FSCS must pay compensation to all claimants affected by default but there are limits;

• Deposits - 100% of first £85k per person per auth firm. Target of 7 day payout for majority and rest within 20 days.
• Investments - 100% of £85k
• Long term insurance - product providers - 100% of claim with no upper limit.
  - intermediaries - 90% with no upper limit.
• General Insurance - compulsory insurance 100% & 90% for non
• Home finance mediation - 100% of £85k

Question 45

FSCS - deposits temp cover, how funded & classes, insurance duty, payment (when, pensions, negligence (2) and with profit bonus), independent actuary referral.

Answer 45

Deposits with high balance are temp covered up to £1m for six months to ensure depositors are protected when they deposit funds until they have had time to spread risk between institutions to appropriately protect funds.

FSCS is funded by levy on authorised firms split into 5 broad classes - deposits, investment, life and pensions, general insurance and home finance. Two sub classes in each broad class which is divided provider and distributor lines. Each sub class has a limit and once reached, other classes required to contribute.

They also have duty to secure continuity of insurance for long term insurance policyholders by transferring to another provider.

Claims must be paid asap after calculation. Payment can be made to pension scheme in pensions cases to avoid tax law being broken. They can reduce compensation if there was negligence by claimant or paying full amount would provide larger benefit than they would have expected. Any bonus on with profits is not part of claim unless declared prior to liquidation.

If they believe benefits under long term insurance are excessive, then they must refer contract to independent actuary who, if agree, FSCS can reduce their claim.

Question 46

The Pension Ombudsman - set up to, legal powers & decisions are…(3) and how funded

Answer 46

Same as FOS but for pensions. Independent organisation set up to investigate complaints about pension administration and actions and decisions of Pension Protection Fund.

Free service that looks at facts and has legal powers to make decisions that are final, binding and enforceable.

Funded by grant-in-aid paid by DWP and is largely recovered from levy on pension schemes administered by Pensions Regulator.

Question 47

The Pension Protection Fund (PPF) - exists and purpose?, how funded and Fraud Compensation Fund (who comp to and why)

Answer 47

Exists to provide compensation to members of eligible DB pensions due to insolvency or lack of assets to cover payments. Purpose is to ensure employee of company that has ceased trading will still receive pension payments.

To help fund, annual levies are charged on eligible schemes.

Also responsible for fraud compensation fund which provides compensation to occupational pension schemes that have suffered a loss due to dishonesty.