July 2008 Target (Printer Friendly Version)

Editorial

Welcome to Target...

CONTENTS

  • PS08/7 Simplifying Disclosure: Information about Costs and Services
  • Integrated Regulatory Reporting (IRR): Important Changes in to the FSA
  • Consumer Credit Licence fees
  • Treating Customers Fairly Progress Report
  • The FSA Annual Report
  • PS08/6 Implementation of the 8th Company Law Directive

PS08/7 Simplifying Disclosure: Information about Costs and Services

In the March edition of Target we explained that the FSA had issued a Consultation Paper proposing to replace the investment IDD and Menu with a new disclosure document, which will be called the ‘Services and Costs Disclosure Document’ (SCDD). The Policy Statement on this has now been released and confirms the introduction of this new document from 6th August 2008. The Policy Statement does not vary greatly from the original Consultation Paper, although there have been some small changes made to the actual wording in the new document.

The FSA has stated that the IDD and Menu have not been as effective as was hoped and the Menu in particular is highly prescriptive, which goes against the move to a more principles-based approach to regulation. In addition the need to collect information on and update the market averages each year has not been found to be cost effective. Therefore the decision has been taken to move away from the use of these documents and replace them with a single document to meet the disclosure requirements but with a greater degree of flexibility over the content. Please note that disclosure for Home Finance activity will continue in the form of the IDD.

The use of the IDD and Menu became guidance rather than rules with the introduction of COBS last November and the use of the SCDD will also be guidance only. A number of Partner Firms have already taken the opportunity to follow Paradigm’s lead and produce their own disclosure documents and firms will be able to continue to do this, with the Paradigm Client Agreements providing one possible way of achieving compliant disclosure documentation which is principles based led.

In addition to introducing this new document, the combined initial disclosure document (CIDD) is also being updated to ensure consistency with the SCDD. This means amending the investment content and also changing the title to ‘about our services and costs’. This change must be implemented by 1st September 2009.

There is also a transitional period for firms who use the IDD and Menu to switch across to the Services and Costs disclosure document, or to produce their own document. This transitional period will end on 31st August 2009 by which time firms will no longer be able to use the IDD and Menu and must either use the SCDD or have their own disclosure documents in place.

The FSA website offers ‘build your own’ tools for disclosure documents, and from 6th August 2008 these tools will be updated to enable firms to produce the new disclosure documents. The build your own tools for the IDD and Menu will no longer be available from this date but can be accessed in template format in the Forms section of the site. The Menu calculator will remain available on the site until 31st August 2009 for those firms who wish to continue to use the IDD and Menu through the transitional period.

Paradigm is on hand, via your Paradigm Business Consultant or Paradigm Technical Services, to help Partner firms ensure that their disclosure documents continue to meet the regulatory requirements whether this is through the use of the SCDD or through their own documentation.

Integrated Regulatory Reporting (IRR): Important Changes in Reporting to the FSA

Firms on line and the RMAR, as it stands, are being phased out and the information you would normally provide in the RMAR will be integrated into a new reporting system entitled GABRIEL (Gathering Better Regulatory Information Electronically).

In the next few weeks compliance officers of Partner Firms will be receiving an information pack which explains how you will need to change the way you report to the FSA.

There are three phases to the Introduction of GABRIEL which will affect firms as follows: -

  1. July 2008 – Compliance officers will receive an information pack on the new system
  2. 31st August 2008 – GABRIEL starts for BIPRU and Non BIPRU firms (e.g. Portfolio managers and Unit Trust Providers)
  3. 30th September onwards – GABRIEL will be used by all firms above and firms who currently complete the RMAR.

How does GABRIEL work?

  • In simple terms GABRIEL is an updated means of firms reporting their regulatory data to the FSA. The system works on an HTML format.
  • It is in a simpler format to the RMAR and more sophisticated. Unfortunately being more sophisticated does not mean that you will not have to duplicate data entries in some parts of the return. The FSA state that this duplication is necessary because of the way they interpret and act on the data you submit.

What’s new?

  • GABRIEL will personalise your return according to your permissions – the FSA will, as part of the information pack mentioned above, ask firms to check their permissions as these will migrate to GABRIEL and will become the basis of your regulatory report.
  • Principal users will be able to permit other nominated members of staff to fill in sections of the return.
  • All past GABRIEL returns will be stored and available for reference. Future reporting schedule dates – due date, reporting start date and reporting end date will be on screen.
  • The return can be part submitted to the FSA rather than having to wait for all details to be collated and then submitted in one go. However, you will still have the time limit for submission (see point 10 below).
  • Completion status – the return will show the completion status of each section; no data, draft, ready to submit, submitted, failed validation and whether cross validation is required
  • If you make a mistake in a section of your return the appropriate box will go RED to show you where you have slipped up.
  • Cross validation of data will be done by clicking boxes when you are ready to have your details checked.
  • All firms will have to enter Balance sheet and income statements. These statements will be cumulative over the year.
  • Your reporting dates will be aligned with your accounting reference dates (ARD). In other words if your ARD is in the middle of a month, your GABRIEL return will be due at that time.
  • Submission periods will be within 20 business days of ARD in most cases but there are some data items which have a reporting period of 30 days. This will not affect most clients
  • For most firms returns will be six monthly as now apart from CAD exempt firms who will have to make returns quarterly. This will apply if you passport, for example.
  • You can make returns online, by down loading a PDF and then uploading the completed document and for more sophisticated firms, using an xml file that is compliant with the FSA’s Data Reference guide.
  • Not only will you have to submit PII details but you will also have to confirm the amount of indemnity you are required to have based on your permissions and capital adequacy together with details of the indemnity limits you actually have obtained.
  • Questions now included on how you meet your regulatory capital requirement – PII, Capital or both
  • If your ARD is before 30th September 2008 you will complete your RMAR as usual.
  • Copies of e-mails sent by the FSA to you will be stored on GABRIEL

For most firms who are Article 3 exempt Personal Investment Firms you will find that there is little change on the data you will have to submit from now e.g. COB, T & C Complaints etc.

GABRIEL should be easier to follow and the FSA will inform you by e-mail when your return is due and remind you 5 days before your reporting window ends.

Significant changes for certain MiFID and CAD exempt firms

  1. CAD exempt and MiFID firms to report quarterly
  2. Increased capital adequacy calculations
  3. LLP capital to be net of “excess” drawings
  4. Questions on how you meet your regulatory capital requirement – PII, Capital or both
  5. More complex firms will have to complete expenditure based requirement details
  6. Questions on volume and types of business
  7. Percentage of clients that are retail clients required
  8. Details of holding client money – the FSA want to know who is actually using this permission
  9. Investment managers subject to liquid capital requirement

Consumer Credit Licence fees

From April this year the Office of Fair Trading (OFT) has made a number of changes with regard to the Consumer Credit Licence. Following on from this article we have received further clarification on a number of issues.

As stated in April the categories for the CCL have changed. Category C is the one most likely to apply to IFAs although we would recommend that you review your own business model to ensure all relevant categories are selected.

A firm will only need to complete a Credit Competence Plan if they are applying for a licence which includes a category deemed as high risk, such as H1 mentioned in our earlier article. Therefore firms who only apply for category C do not need to complete this.

The charges for the CCL have also changed and for directly authorised firms are as follows:

Sole trader - £230

Partnership, Company or other organisation - £575

Appointed representatives and self employed advisers applying for their own licences also have to pay a Consumer Credit Jurisdiction Levy of £150 meaning the costs will be as follows:

Sole trader - £380

Partnership, Company or other organisation - £725

If you require any further information in relation to Consumer Credit Licences we recommend you click on the following link

The Office of Fair Trading: Consumer credit licences

or contact the OFT for specific guidance — 08457 22 44 99

Treating Customers Fairly Progress Report

The FSA has recently published a report detailing the progress firms are making towards meeting the December deadline for demonstrating that they are treating their customers fairly.

To meet the December deadline firms will have to:

  • demonstrate that senior management have instilled a culture within the firm whereby they understand what the fair treatment of customers means; where they expect their staff to achieve this at all times; and where (a relatively small number of) errors are promptly found by firms, put right and learned from;
  • be appropriately and accurately measuring performance against all customer fairness issues materially relevant to their business, and be acting on the results;
  • be demonstrating through those measures that they are delivering fair outcomes; and
  • have no serious failings – whether seen through MI or known to us directly – including in areas of particular regulatory interest previously publicised by the FSA.

Following the March deadline for firms to have Management Information (MI) in place to measure TCF, the FSA has carried out assessments of a number of relationship-managed firms to see if they have met this deadline and findings show that only 13% of the firms assessed managed to meet the March deadline.

Whilst this in only a very small percentage, it has been noted that many firms have invested significant time and energy working to measure TCF and the FSA does believe that if this effort is continued, around 80% of firms will meet the December deadline.

With regard to small firms, the FSA has not been able to assess a large enough relative sample from which conclusions about the progress being made in respect of TCF can be drawn, but it has been noted that the initial signs are encouraging. Small firms have been showing greater awareness and engagement on TCF and this can allow them to make swift progress towards the TCF objectives. It is expected that results of the progress made by small firms will be announced in the fourth quarter of this year.

The FSA has also started what will be a three-year regional programme to assess how management of smaller firms have approached TCF and embedded this into their business. Roadshows will take place around the country, linked into the assessments and firms will also have access to case studies and examples of good and bad practice to help meet the TCF obligations.

The Paradigm Compliance Manual includes a Chapter dedicated to TCF (Chapter 1A) which includes information on TCF as well as templates and checklists that firms can use to help achieve the TCF requirements and the feedback received from the FSA by Partner firms has so far been positive.

If you have any questions on the subject of TCF or would like some assistance in meeting the December deadline, then please contact your Paradigm Business Consultant or Paradigm Technical Services on 0845 620 1998.

The FSA Annual Report

In the FSA Annual Report issued on the 30th June 2008 the Chief Executive Hector Sants highlighted several items that may be relevant to Paradigm Partner firms during the next twelve months. He mentioned the successful implementation of MiFID and the CRD, making progress on consumer protection re TCF and also the RDR.

The FSA continue to deliver a more ‘Principles Based Regulation’, The Northern Rock episode supported PBR and how important it is that management and the FSA focus on the delivery of outcomes , rather than just focusing on mechanically complying with the rules.

The FSA are committed to providing more principles based regulation and focusing on the outcomes that matter.

In both the conduct of investment Business and general insurance they are significant examples of PBR and what the FSA is trying to achieve, in both cases the rule books have been significantly shortened, easier to understand, and allow firms more flexibility in how they comply.

Supervision by the FSA remains core to achieving these objectives, this includes promoting their TCF outcomes, encouraging and assisting firms wanting to improve their standards, and taking firm action where appropriate.

Enforcement action will continue to concentrate on adequate systems and controls, market protection, fitness and propriety, money laundering and financial fraud.

The FSA will to take action against firms by means of fines, requiring firms to cease trading, requiring a part review of business, and requiring firms to engage independent consultants to advise firms on how to comply with regulatory requirements in the future.

Treating Customers Fairly

The FSA expects to have contact with 11300 firms over the next three years to assess the implementation of TCF. The FSA have recruited an extra 50 staff needed for this work.

MiFID

The FSA with effect from the 1st November 2007 fully implemented MiFID, apart from some transitional provisions. The FSA also consulted on whether the common platform implementing MiFID and CRD systems should be extended to non-MiFID firms. They plan to feedback on the results of the consultation later in 2008. The FSA also began in early 2008 a risk based review to establish that firms affected by MiFID have implemented the new regime properly, this is ongoing.

Integrated Regulatory Reporting

The FSA has confirmed that GABRIEL will be rolled out from August 2008, and the RMAR and the Complaints Return will be replaced by GABRIEL in October 2008.

Retail Distribution Review

The RDR remains a key retail priority for the FSA. They realised from an early stage the importance of taking time to get things right and also to be flexible in their thinking. The full feedback statement will be published in October this year.

The FSA’s interim report has built on the proposals in the Discussion Paper and the consequential feedback from the industry, including higher professional standards for people giving advice and the possibility that the FSA may develop a new regulatory regime for simpler products. The FSA has responded to comment and is proposing less complex tiering of services and only one type of adviser that is closer to the Professional Financial Planner, this would mean a change in minimum standards and remuneration arrangements for all those giving advice.

The FSA has no plans at the present time, to adopt the RDR for mortgages and general insurance business.

Platforms-wraps/fund supermarkets

As the FSA set out in their June 2008 Discussion Paper, they are aware of the diversity in the platform market. The FSA highlighted the importance of intermediaries using platforms appropriately and staff should have the necessary skills, the FSA will be considering this in their thematic review of intermediaries use of platforms.