Investment Forum
Regulatory Update
Round 1 - 2017
Learning Objectives
• Identify the final changes to the capital
adequacy requirements that take affect this year
• Understand the forthcoming EU regulatory
directives and their impact within the UK
• Gain a general awareness of all other regulatory
changes and those expected by the FCA
Ongoing Reviews
RDR rules state:
• A firm must not use an adviser charge which is
structured to be payable over a period of time unless;
• The charge is in respect of an ongoing service for the
provision of personal recommendation or related
services
So why remind you of this?
Ongoing Reviews – A Reminder
There are 3 reasons why this is relevant:
1. Thematic Reviews (TR) 14/21 & 15/12
2. Positive Compliance – Live & Local
3. Robo-Services
1. Thematic Reviews Expectations Ectations
• Is the nature of the service clear and relevant to
the client. Do these provide a tangible value?
• Are services delivered as agreed?
• Does the firm have adequate resource to deliver
the agreed level of service?
• Is the cost of the service specific (in cash terms)?
• Are client circumstances reviewed and is it
evidenced?
The Review Process
This should include:
• Changes in circumstances (health/wealth/job)
• Changes in goals/needs & objectives
• Review of the clients ATR and CFL
• Review of tax/legislative changes
• Review of the investment portfolio
Is a suitability report required?
Suitability Report
A report must be provided when recommending
the client:
• Acquire holdings (units)
• Sell holdings (units)
This applies to:
• Fund switches
• Rebalancing
New definition of advice will include ‘holding
existing units’ i.e. to do nothing
SimplyBiz Support - Annual Review
• New client file document to demonstrate review
of client circumstances
• Pre-investment review letter
• Post-investment review letter
• This evidences your process and the review
Remember – remind the client of the ongoing
cost
2. FCA Positive Compliance Sessions
• Ongoing services are subject to FCA reviews as
part of Thematic work
• Systems and controls should be in place to
ensure they happen at the right time
• Revisit all key information especially attitude to
investment risk
• Non-engagement with clients……what to
consider
Client Non-Engagement
• What is your process for dealing with clients
that do not engage in the review process?
• For how long would you continue to charge the
client?
• How is this shown in your management
information (MI)?
3. Robo Services?
Digitally Assisted Services
• Bring about further efficiencies into your
business
• You can transact business without the liability of
a personal recommendation
• Save time for both you and your clients
Ongoing Service
• It does not pay a ‘commission’ but the firm
selects their charge
• As it is not a personal recommendation the
adviser charging rules do not apply
• Where your firm charges an on-going fee
consider the service provided. It may be a
question for the future!
Consumer Protection on
• Principles for Businesses (4)
‘A firm must maintain adequate financial resources’
• Threshold Conditions (COND 2.4)
The matters which are relevant in determining whether a firm
has appropriate resources include• (a) the nature and scale of the business carried on, or to be
carried on;
• (b) the risks to the continuity of the services provided by, or
to be provided
Capital Adequacy Changes
From 30th June 2017 minimum capital
Investment
incometo:requirement
increase
£300,000 x5% = £15,000
• £20,000
OrMortgage
if higher: & Insurance income -
£300,000 x2.5% = £7,500
• 5% of investment income plus 2.5% of
anyAdequacy
mortgage =and
insurance income
Capital
£22,500
Subordinated Loans
• At the same time the subordinated loan
restriction takes effect
• This restricts subordinated loan to 400% of
capital and reserves, less goodwill
• Any excess in the subordinated loan is used as
a liability in the ‘own funds’ calculation
Subordinated Loan Example 1
• Capital adequacy is £20,000
• Subordinated loan of £20,000 with no goodwill
Capital and Reserves - £5,000
£5,000 x 400% = £20,000 (no sub loan liability)
C&Rs plus Sub Loan (£5,000 + £20,000) =
Own funds £25,000
Subordinated Loan Example 2
• Capital adequacy is £20,000
• Subordinated loan of £20,000 with no goodwill
Capital and Reserves - £4,000
£4,000 x 400% = £16,000 (£4,000 sub loan liability)
C&Rs plus Sub Loan (£4,000 + £20,000 - £4,000) =
Own funds £20,000
Subordinated Loan Example 3
• Capital adequacy is £20,000
• Subordinated loan of £20,000 with no goodwill
Capital and Reserves - £3,000
£3,000 x 400% = £12,000 (£8,000 sub loan liability)
C&Rs plus Sub Loan (£3,000 + £20,000 - £8,000) =
Own funds £15,000
Goodwill
• Remember goodwill is taken from capital and
reserves
• If goodwill is greater than capital and reserves
the firm will not be able to meet its ‘own funds’
• Consider removing the goodwill from the
regulated firm
• Speak to your accountant!
Subordinated Loans / Action
• Review your financial position at the earliest
time possible
• Refer to C&TT 187
• Where action is needed seek advice from your
accountant
• For any further support please contact our
compliance helpdesk
The FSCS
• Funding of the scheme was last reviewed in
2013 by FSA
• Is it still working well for consumers?
• Is it still working well for the firms that have to
contribute?
• We are now having a further review
• We have FAMR to thank for this
The FSCS
Why is it not working?
• PII market is not competitive but cover is mandatory
• PI cover has many limitations when liabilities arise
• Disproportionate cost of protecting UCISs
• High cost of funding and unpredictability of levies
• Outcomes by The Ombudsman
FSCS – The Proposals
• Review the PII conditions of cover
• Introduce product provider contributions
• Have one class of intermediation for all activities
• Move to risk-based levies
• Uplift levels of cover for consumers
• Build up a buffer to smooth the effects of funding
What next?
Your Feedback
• Consultation closes on • Do you think PII works
and if not what would
31/03/2017
you change?
• Please be patient!
• Do you think the
current FSCS funding
• Further consultation in
system works and if
2018
not……?
• Send us your feedback
• Is there anything else
to C&TT 185
you would like us to
consider?
Notification to HMRC of offshore assets and
income
• Do any of your clients hold overseas assets or
receive income?
• You must notify them of their requirement to
declare this to HMRC
• Send them the HMRC notice with a covering
letter containing prescribed text
• See C&TT 186 for the notice and wording
Which clients to notify
• Those clients you have dealt with throughout
the year to 30/09/2016
• And where you expect there to be a future
relationship
• Clients must be notified by 31st August 2017
•Failure to take action could result in a
fine of £3,000
Looking ahead
• Q1 – CP on Insurance Distribution Directive
• Q1 – CP on redress for pension transfers
• Q2 – Exam standards
• Q2 – MiFID II rules
Learning Objectives
• Identify the final changes to the capital
adequacy requirements that take affect this year
• Understand the forthcoming EU regulatory
directives and their impact within the UK
• Gain a general awareness of all other regulatory
changes and those expected by the FCA