UK: Weekly Financial Services Regulatory Update - 02.03.12

Last Updated: 12 March 2012
Article by James Cooper

Consultation papers:

28 February: Pension Transfer Value Analysis Assumptions, CP12/4. This consultation paper has been drafted to incorporate changes into the calculation of pension transfer values in order to clarify and update the current standards and ensure that, when considering a transfer, members are given a fair assessment of what they will receive in retirement. It is proposed that:

  • The mortality basis be updated to be consistent with the Board for Actuarial Standards' Statutory Money Purchase Illustration mortality basis
  • An explicit Consumer Prices Index ('CPI') assumption be introduced for revaluation of pensions in deferment (at a rate yet to be determined)
  • There be a requirement that CPI-linked benefits be valued using the same interest rate assumption as is used for the Retail Price Index (RPI)- linked annuities
  • Limited Price Indexation annuities be valued on the same assumptions as RPI annuities
  • There be a requirement that transfer value analysis comparisons be illustrated using a growth assumption that takes account of the member's attitude to risk and the recommended personal pension assets, as well as being conservative enough to reflect that the member has taken on the investment and longevity risks

The deadline for responses is 27 March 2012.

For the related newsletter and press release, please see the relevant sections of this update.

27 February: FSA guidance consultation on RDR and independent and restricted advice. The FSA has published a guidance consultation entitled 'Retail Distribution Review (RDR): Independent and restricted advice'. From the end of 2012, firms providing investment advice will be required to specify whether the advice given is independent or restricted. The introduction of a new standard for what can be considered independent is designed to ensure that such advice is free from bias and does not limit the range of solutions available. The guidance outlines:

  • The key components of the standard for independent advice
  • The requirements for firms providing restricted advice
  • The requirements for how firms hold themselves out
  • A number of advice tools and investment strategies, and how their use may influence the ability of firms to meet the independent advice rules
  • Professional standards and how differences between the qualifications and skills of advisers may affect the ability of advice to meet the independent advice rules

The deadline for responses is 9 April 2012.

Discussion papers:

No new developments this week.

Policy statements:

27 February: Distribution of Retail Investments: RDR Adviser Charging – treatment of legacy assets. The FSA has published its policy statement on the treatment of legacy assets under the Retail Distribution Review (RDR) adviser charging rules, following on from its consultation paper of the same name (CP11/26). This statement reports on the main issues arising from that paper and publishes the FSA's final guidance. Specifically:

  • The FSA restates in its final guidance the basic position in relation to non-advised changes and offsetting trail commission against adviser charges
  • New guidance added to the Conduct of Business Sourcebook (COBS) includes an outline of instances where trail commission can continue to be paid
  • Changes made to the Perimeter Guidance Manual (PERG) include the examples which were consulted on, as well as an additional example covering the case where one person gifts an investment to another person
  • It goes on to provide clarification on a number of issues that appeared to be required from the responses to the consultation, including the issues that arise when a non-discretionary manager moves to adviser charging and the re-registration of assets from one platform to another
  • A cost-benefit analysis of the changes is provided in conclusion

For the related newsletter, please see the relevant section of this update.

Press releases:

1 March: Three arrested in FSA insider dealing investigation. The FSA has executed three search warrants at premises in Northwich and Rossendale. Three individuals have been arrested and were taken into custody for questioning in relation to an investigation into insider dealing. These arrests are not linked to any other ongoing insider dealing investigation and no individuals have been charged.

28 February: FSA publishes proposals to change the way pension transfer values are calculated. The FSA has published a consultation paper outlining proposals to change the way pension transfer analysis is carried out. The changes aim to ensure that pension scheme members are given a fair assessment of what they will receive in retirement when they are considering a transfer. It is estimated that the changes will prevent an undervaluation of benefits of up to £20 billion.

For the related consultation paper and newsletter, please see the relevant sections of this update.


27 February: FSA Solvency II Industry briefing: Speech by Julian Adams. The FSA hosted a Solvency II Directive (the 'Directive') industry briefing on 27 February at which Julian Adams, Director of Insurance at the FSA, gave a speech on the Directive. In his speech, Adams outlines the ongoing uncertainty at the European level in relation to the timeline for implementation. He also explains how the FSA has been dealing with this uncertainty and touches on how the implementation of the Directive will interact with the UK's domestic regulatory reform agenda, particularly in relation to the creation of the Prudential Regulation Authority.

Bulletins and newsletters:

28 February: Pension Transfers – How the proposals on pension transfer analysis affect your firm. To accompany the consultation paper published on 28 February 2012, the FSA has also published a newsletter to explain how the proposed changes to the way in which pension transfer values are calculated will affect interested parties. It begins by specifying the people most likely to be affected (directly and indirectly) and goes on to briefly outline why the changes are important, what the background to the issue is and also provides the date by when responses have to be submitted (27 March 2012).

For the related consultation paper and press release, please see the relevant sections of this update.

27 February: RDR Adviser Charging – treatment of legacy assets: How our policy statement will affect your firm. To accompany its policy statement on the same subject, the FSA has published a newsletter to allow potentially affected parties to gain a brief overview of the policy statement itself. In particular, it outlines:

  • Who the policy statement will be relevant to
  • Why it is important to firms
  • The future plans of the FSA in this area
  • The background to the policy statement

For the related policy statement, please see the relevant sections of this update.

27 February: FSA RDR Newsletter Number 4. The FSA has published the 4th issue of the Retail Distribution Review (RDR) Newsletter, dated February 2012. The newsletter includes policy updates on the list of accredited bodies, independent and restricted advice, the treatment of legacy assets and VAT implications of the RDR, as well as tips for firms on how to get ready for the RDR.

Final notices:

2 March: Philip Bealing. The FSA has issued a final notice, dated 2 March 2012, cancelling Mr Bealing's Part IV Permission. Mr Bealing failed to pay fees and levies of £1,665.59 owed to the FSA despite repeated requests for him to do so. The FSA has therefore concluded that Mr Bealing is not conducting his business soundly, prudently and in compliance with proper standards and is not a fit and proper person to be conducting the regulated activities for which he had his permission.

2 March: Malcolm Thomas Shapcott, trading as Independent Solutions. The FSA has issued a final notice, dated 2 March 2012, cancelling Mr Shapcott's Part IV Permission. Mr Shapcott, trading as Independent Solutions, failed to pay fees and levies of £1,317.88 owed to the FSA despite repeated requests for him to do so. The FSA has therefore concluded that Mr Shapcott is not conducting his business soundly, prudently and in compliance with proper standards and is not a fit and proper person to be conducting the regulated activities for which he had his permission.

1 March: Paul William Tonks, trading as Paul Tonks Mortgage Sourcing. The FSA has issued a final notice, dated 1 March 2012, cancelling Mr Tonks' Part IV Permission. Mr Tonks failed to pay fees and levies of £1,443.93 owed to the FSA despite repeated requests for him to do so. The FSA has therefore concluded that Mr Tonks is not conducting his business soundly, prudently and in compliance with proper standards and is not a fit and proper person to be conducting the regulated activities for which he had his permission.

1 March: Alasdair Samuel Munro. The FSA has issued a final notice, dated 1 March 2012, cancelling Mr Munro's Part IV Permission. Mr Munro failed to pay fees and levies of £1,631.08 owed to the FSA despite repeated requests for him to do so. The FSA has therefore concluded that Mr Munro is not conducting his business soundly, prudently and in compliance with proper standards and is not a fit and proper person to be conducting the regulated activities for which he had his permission.

Application refusals:

No new developments this week.

Approved person refusals:

No new developments this week.

Research publications:

No new developments this week.

Consumer research:

No new developments this week.

Other FSA publications:

1 March: MoU published between the FSA and the Department of Enterprise, Trade and Investment in Northern Ireland. The FSA has published a Memorandum of Understanding (MoU), dated 23 January 2012, which it has entered into with the Department of Enterprise, Trade and Investment in Northern Ireland ('DETI'). The MoU outlines agreed obligations between the two bodies in the areas of information sharing and handling, website maintenance, co-operation during investigations and general relationship management.

1 March: FSA finalised guidance: version 3 of Transaction Reporting User Pack. The FSA has published final guidance on its Transaction Reporting User Pack (TRUP). This guidance provides Version 3 of the TRUP dated, and effective from, 1 March 2012 as well as a summary of feedback on the guidance consultation.

1 March: Modification by consent of INSPRU 2.1.22R. The FSA has decided that no new modification by consent will be required to deal with the issues arising for insurance companies in the context of the nationalisation of two UK banks by HM Treasury and the recapitalisation of a number of others. The FSA has reconsidered its position and now finds that it can regard the relationships between the banks and HM Treasury or UK Financial Investments Ltd as not constituting a single risk for the purpose of the definition of "closely related".

29 February: Final Guidance published on Collateral Upgrade Transactions (includes liquidity swaps). The FSA has published its final guidance on collateral upgrade transactions following its consultation between July- September 2011. The FSA's objective in providing this guidance is to alert firms to its concerns about collateral upgrade transactions which include:

  • The continuing trend to encumber balance sheets to the potential detriment of consumers
  • Using borrowed assets to meet liquidity requirements and/or help funding
  • Whether risk management frameworks are adequate to deal with the increased risk from extended maturities significant size, and the use of potentially illiquid or less-liquid, poorer quality and difficult to value assets as collateral
  • Whether such transactions hinder the resolvability of firms

The FSA is considering further substantive work on all forms of collateralised borrowing transactions and intends to define collateralised borrowing as well as potentially working on the areas of data collection and ways to facilitate market transparency.

29 February: Assessing the possible sources of systemic risk from hedge funds. The FSA has published a report setting out the results of the FSA's latest Hedge Fund Survey, conducted in September 2011 and the Hedge Fund as Counterparty Survey conducted in October 2011. Findings included the following:

  • Most hedge funds reported negative returns
  • The presence in financial markets of funds is generally small when measured by the value of their exposures and by turnover
  • Hedge funds report that they are able to liquidate their assets ahead of demand. However, the risk of a sudden withdrawal of funding during stressed market periods is likely to remain
  • Counterparty exposures of funds remain fairly concentrated among a select few banks
  • Approximately 43% of funds reported zero rehypothecated assets

27 February: BoE and FSA explain PRA approach to consultation. The Bank of England (BoE) and the FSA have jointly published a note in response to the request from the Government to provide more information on how the Prudential Regulation Authority will approach consultation. The note sets out that the PRA will:

  • Get involved at an earlier stage depending upon how complex the issue is
  • Give firms and interested parties the opportunity to express their views
  • Actively seek input from expert practitioners
  • Support the UK's engagement in discussions over the development of EU rules and implement any new changes as necessary

27 February: FSA finalised guidance on questions asked at RDR roadshows. The FSA has published its finalised guidance on top questions asked at the Retail Distribution Review (RDR) roadshows. The guidance is structured in a Q&A format and focuses on professionalism requirements, the provision of independent advice and adviser charging,

27 February: FSA update on CPP Group plc and review of sales of protection products. The FSA has published a webpage about CPP Group Plc following the suspension of its shares on 20 February 2012. The FSA has reiterated its concerns about the way in which CPP sold identity and card protection policies and confirms that CPP has agreed in principle to contact customers who may have been mis-sold these policies. The FSA is considering whether sales made by CPP through their business partners ought also to be reviewed.

27 February: FSA finalised guidance on Distributor- Influenced Funds. The FSA has published finalised guidance on distributor-influenced funds in the form of two factsheets. These are revised versions of factsheets first published in December 2008 which have been updated to incorporate the changes made under the Retail Distribution Review. A summary of feedback on the guidance consultation has also been published and the FSA has noted in this feedback that, although further guidance has been requested in areas not covered by the consultation, it is not the FSA's intention to provide a more detailed set of rules for firms to follow at this time as the purpose of the factsheets is to provide guidelines rather than detailed instructions.

UKLA publications:

No new developments this week.

Upper Tribunal (Tax and Chancery Chamber) (formerly Financial Services and Markets Tribunal (FSMT)):

29 February: Upper Tribunal directs FSA to issue prohibition order to introducer appointed representative. The Upper Tribunal (Tax and Chancery Chamber) has published its decision in the case of Derek William Wright v FSA FS/2011/0008). The FSA issued a decision notice on 23 February 2011 prohibiting Mr Wright from performing all regulated activities on the grounds of honesty, integrity and competence. Mr Wright appealed against the decision on the basis that it was neither fair nor proportionate, that he was not a "fundamentally dishonest man" and that in his limited role as an Introducer Appointed Representative he poses a minimal risk to the financial system. Mr Wright would have accepted an order prohibiting him from performing a governing controlled function as he accepts that he lacks the competence and capability to perform such a function.

The tribunal held that Mr Wright would act dishonestly and with a lack of integrity if it suited his purpose and therefore could not be trusted not to stray beyond his remit as an Introducer Appointed Representative. The prohibition order originally proposed was therefore upheld.

Financial Ombudsman Service (FOS):

28 February: Ombudsman Releases Latest Complaints Data on Individual Financial Businesses. The FOS has published data on consumer complaints handled in the second half of 2011, including the number of complaints received (106,193) and the number of complaints upheld in favour of the consumer (72 per cent). 46,700 complaints related to PPI, which was a decrease of 53 per cent on the previous half of the year. Mortgage-related complaints increased by 38 per cent, whereas investment-related complaints have remained relatively consistent.

London Stock Exchange (LSE):

No new developments this week.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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