FCA Final Notices – riveting reads

The title may well lead you to thinking that this guy isn’t too tightly wrapped and perhaps a couple of sandwiches short of a picnic, but there is method in the madness. Honestly.

Most of you good folk out there will receive regular bulletins from various publications virtually every day (almost hourly if you subscribe to a few) and lately there have been a number of headline grabbers, such as: FCA bans adviser over ‘negligent’ pension advice, FCA fines adviser for ‘dishonest pension advice’, or, FCA bans and fines two British Steel advisers.

You’ll have seen this sort of thing numerous times and these articles are often clickbait for keyboard warriors, but they are generally driven in the first instance by the issuance of FCA Final Notices, which can be found within the Publications section of the FCA website. Journalists don’t need to look that far for some juicy material!

We’re not saying that Final Notices are going to reach the top of the Sunday Times Best Sellers List anytime soon, but if you really want some insight into what causes things to go wrong in advice firms, they provide some excellent pointers.

For example

The failings identified by the regulator in many of these instances are remarkably similar and one such notice that we frequently cite as a good example (because it hit all the wrong buttons) was issued by the FSA on 27 January 2010. Since then the same findings have appeared with alarming regularity in subsequent notices, but despite this, these issues keep cropping up time and again.

The firm in question had been paid a visit by the FSA and part of this involved the checking of 19 advice files – the regulator frequently draws its conclusions from a relatively small sample, especially where trends are identified.

The commentary noted that: ‘In 17 of the 19 files reviewed, there was insufficient personal and financial information on the customer file and/or incomplete or non-existent fact finds to demonstrate the suitability of the recommendation’. Sound familiar?

It goes on to say: Our findings are supported by a review of the firm’s core business areas conducted by its external compliance consultants. The consultants used a traffic light rating system to assess the adequacy of each core business area, with “red” defined as being the most serious requiring urgent attention. This included a review of the firm’s selling practices, which were rated “red”.

In relation to advice suitability, the regulator highlighted that: The firm failed to demonstrate that it had obtained sufficient personal and financial information about its customers to assess the suitability of its recommendations to enter into investment and insurance contracts. In only three cases were the customer’s objectives clearly and fully identified.

To make matters worse

The firm failed to implement an adequate process for reviewing the competence, knowledge, skills, training and ongoing performance monitoring of staff. As a result there was no proper system for reviewing and assessing the quality of advice being given by the firm’s advisers. For example, there was no evidence of any formal assessment of the ongoing competence of the advisers and quality of advice checks being carried out. This core business area was also categorised as “red” by the firm’s external compliance consultants.

The outcome

As a result of the above, the firm was unable to evidence suitability of advice, which in turn led to the firm ‘not having adequate and appropriate systems and controls, compliance arrangements and risk management systems over its business’. As the core product/service of most advisory firms is advice, this was pretty damning.

The firm was subsequently fined and agreed to appoint an external compliance consultant to conduct a risk-based phased past business review of products sold over a two year period, and to compensate any customers who may have suffered loss. Ouch!

More recently

There have been several notable cases of late, mostly involving British Steel DB transfer advice, where the FCA has imposed some very significant fines, but these have also been accompanied not only by the individuals concerned being banned from advising and holding senior positions in firms, but some pretty strong rhetoric too, with words like, ‘incompetent, ‘dishonest’, acting without due skill, care and diligence being used. The language being used by the FCA appears to be a definite shift in stance, with no lack of emphasis in its commentary.

The level of fines imposed has also increased markedly, with some eye watering penalties being levied (ever wondered how much was generated gross prior to this ‘misconduct’ being identified?), so anyone under the impression that individuals won’t be taken to task under SM&CR may be wise to have a rethink.

These more recent Final Notices relate to advice imparted since the pension freedoms were introduced, so it’s probable that there will be more to follow for DB transfer advice, but as we’ve mentioned several times previously, the FCA is at a fairly advanced stage in its thematic review of Retirement Income Advice, so the findings from this may well see more firms and individuals taken to task.

It’s not all grim of course, there are some really good firms out there and we deal with many of them, but there are also a lot that may have a problem if their business standards aren’t what they should be.

Final Notices provide a meaningful insight into where problems lurk and where the FCA has taken action, so if any of the findings from these strike a chord in your firm it may be time to make some changes. Doing the same thing and expecting a different outcome really is madness.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

Final Notices provide empirical evidence of what happens when things go awry. A lot of the issues that result in fines, bans and public censure are eminently avoidable, but as is often the case (judging by the number of Section 166 Skilled Persons Reviews we’re involved in), it’s easy to be wise after the event. Consumer Duty is a big deal for most firms and the ability to evidence good consumer outcomes is essential. In our dealings with the FCA, they have made it clear that they will be placing more focus on firms that they haven’t previously had much contact with, which may explain why so few of the firms we deal with weren’t among the 1300+ that received the FCA’s 87 question survey earlier this year. We’d rather be involved in helping firms to get it right in the first place, than dealing with the aftermath when they’ve got it wrong. Prevention is better than cure!

Action Required By You

This may seem like a shameless plug for compliance consultants, but that is definitely not the intention. If you don’t get a third party view of your business how can you be confident that if the regulator does rock up that everything will be OK? Speak to your ATEB Consultant about file reviews or an audit. It’s better for us to provide you with feedback than the FCA.
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About the Author

Paul has in-depth experience across a wide spectrum, having headed up compliance, T&C, monitoring, oversight and MLRO functions previously. He was also an IFA for some time so can see things from more than one angle.

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