Positive Compliance: Episode One

Positive Compliance: Systems and Controls and Business Standards

The FCA has been running a series of Positive Compliance workshops to support advisers in demonstrating suitability for Income Drawdown and Pension Switching business. We intend issuing four newsletters in this area over the coming weeks, with this the first one, focussing on systems and controls and business standards issues common to all investment business.

The Newsletters collates information from various sources. Much of the feedback will come as no surprise but you should nevertheless read through the points carefully.

We have received a great deal of positive feedback with all agreeing that these workshops have been extremely worthwhile. There are still a handful of workshop slots available up to the 5th February, which can be accesses by clicking here.

Feedback Summary

Firstly, a firm should ensure they have the following in place:

  • Systems and Controls
  • You must have an advice process in place that all advisers should follow;
  • For high risk business, ensure it is pre-sale checked as it is often difficult, and costly, to correct advice once business is complete;
  • Management Information (MI) should be clear, reviewed (to use the FCA terminology – ‘interrogated’) and actioned;
  • MI could include:
    • Clearly identifiable New Business Register;
    • Client feedback;
    • Minutes from meetings;
    • File review results;
    • Complaints;
    • Persistency;
    • T&C.
  • File Reviews should be risk based (so high risk business should be identifiable), completed by a competent checker and a report should be produced;
  • If internal file checks are undertaken, you should ‘check the checker’;
  • Regular business review (gap analysis or audit) should be in place and adequate for business purposes.

 Training and Competence

  • Ensure staff maintain their knowledge and professional standards;
  • CPD is essential and must be recorded;
  • The FCA commented that CPD should be focussed on higher risk and products that are not utilised regularly;
  • Knowledge and learning should be tested;
  • You should undertake Field Observations;
  • Use Role Plays;
  • Conduct File Checks; and
  • Complete One-2-One Meetings.

 Common Business Standard Issues

  • Must ensure Disclosure Documents are up to date and contain sufficient information;
  • Sufficient evidence MUST be on file to show how the client ATR has been arrived at;
  • The ATR assessment should include what risks the client is prepared to, needs to, and can take;
  • It should include the investment term; and
  • The client’s prior investment knowledge and / or experience; and
  • The client’s Objectives – must ‘tell a story’;
  • ATR assessments must be consistent;
  • All advisers should be using the same tool;
  • Capacity for Loss must be assessed;
  • When assessing the ATR you should ensure you have clear:
    • Risk profiling assessments; and
    • Risk descriptions – if using ‘1-5’ what does each category mean; and
    • Clear mapping i.e. asset allocation or when passing over to a third party such as a DFM; and
    • Investment selection.
  • If use expressions such as gilts, equities etc, explain what they mean;
  • Also remember risk profiling tools are guides – you must demonstrate how and why the outcome is right for your client.
  • You MUST ensure the fund is suitable for the ATR and circumstances;
  • The file must demonstrate why the new product was required; and
  • Why the new product and provider is recommended and why the existing ones have been discounted;
  • Suitability reports must be personalised (use clients own words) and include client needs and objectives;
  • The costs disclosed in suitability reports must be in £sterling and cannot be just a percentage;
  • One point of interest was that if the fund value fluctuates between advice and a subsequent transfer then the client must receive a follow up letter to clarify the new advice cost;
  • The fact find KYC information must include the client objectives;
  • A KFI that matches the advice should also be on file;
  • If income is a requirement then this must be demonstrated by the completion of an income and expenditure analysis;
  • Research should include:
    • Consideration of the client’s objectives; and
    • Charges; and
    • Performance; and
    • Any loss of benefits; and
    • Availability of appropriate funds; and
    • Financial strength; and
    • Consideration of death benefits; and
    • Any tax impliactions or requirements;
  • You must honour agreements for on-going reviews;
  • Reviews must review all key information including ATR;
  • If reviews are not offered, then document this;
  • Ensure reviews are fully documented and are consistent with what is described in your client service proposition.

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

The FCA have given a clear indication of what they expect and will be looking for when they check firms’ systems and controls and product suitability, so be prepared and ensure your standards match their expectations. 

Action Required By You

  • We strongly recommend that you review your internal systems to ensure all of the above points are being addressed.
  • Most of the feedback should cause you no surprise but you should nevertheless read through the points listed and mark each one with a tick (hopefully), a question mark (requiring clarification) or a cross (requiring action).
  • Discuss the findings with the senior management team and of course document the discussions and outcomes;
  • Ensure all advisers and staff involved in these areas are aware of the content of these Newsletters;
  • Discuss findings with your ATEB consultant or arrange a focussed audit if appropriate. 
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About the Author

Steve is an ATEB Director and has a deep understanding of all matter regulatory, built up over his 30 years + in the industry. With a training background and a technical brain, he overseas numerous complex projects and client implementation work.

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