This weekly update from Clyde & Co's Financial Services Regulatory Team summarises new developments as reported by the FSA, the UKLA, the Upper Tribunal, the Financial Ombudsman Service and the London Stock Exchange over the past week, with links to the full documents where these are available.
We hope that you will find this update useful. If you have any queries about any of the information in this update or financial services regulatory matters generally, please contact one of the individuals listed in the 'Contacts' section of this publication.
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Consultation papers:
6 June: Quarterly Consultation Paper No.33. The FSA has published a quarterly Consultation Paper seeking feedback on various proposed amendments to the FSA Handbook. Proposals include changes to the Advanced Measurement Approach, the rules on calculating counterparty credit risk exposure values for financial derivatives, securities financing transactions and long settlement transactions in the Prudential sourcebook for Banks, Building Societies and Investment Firms (BIPRU), and the implementation of the latest European Commission review on amounts laid down in the Insurance and Reinsurance Directive.
http://www.fsa.gov.uk/library/policy/ cp/2012/12-11.shtml
31 May: Product projections, transfer value analysis (TVA) and Statutory Money Purchase Illustrations. The FSA and the Financial Reporting Council (FRC) have issued a joint Consultation Paper, proposing changes aimed at life insurers and other firms that provide personal pensions, and which are intended to make the rules for personal pensions more consistent with the FRC assumptions. FSA consultations will include updating the mortality assumption used for illustrating a personal pension, introducing a separate Consumer Prices Index (CPI) assumption for TVA, and changes to the projection rates in the Conduct of Business sourcebook (COBS). The FRC is consulting on possible changes to the assumptions used for Statutory Money Purchase Illustration, to make them more consistent with FSA assumptions in COBS.
http://www.fsa.gov.uk/library/policy/ cp/2012/12-10.shtml
Discussion papers:
No new developments this week.
Policy statements:
29 May: Regulatory fees and levies for 2012/13. The FSA has published a Policy Statement reporting on the final 2012/13 FSA periodic fees, Financial Ombudsman Service general levy and Money Advice Service levies as consulted on earlier in 2012. Further, the Policy Statement provides feedback on these fees and levies as well as on the final policy changes that were also consulted on at this time.
http://www.fsa.gov.uk/static/pubs/policy/ps12-11.pdf
28 May: Deposit Protection: raising customer awareness. The FSA has published a Policy Statement to help raise awareness amongst customers of the protection provided for their deposits. It is considered that ensuring that customers are made aware of the level and type of protection provided by their bank for their deposits will help to improve consumer confidence and financial stability. The rules provide standardised wording that should be displayed on posters and stickers in branch, or in a place of prominence where there is significant consumer contact, with reference to the relevant scheme (i.e. the Financial Services Compensation Scheme for UK banks or a specified state deposit scheme if in relation to a non-UK EEA bank) and the limits of that scheme.
http://www.fsa.gov.uk/static/pubs/policy/ps12-10.pdf
Press releases:
31 May: FSA consults on lowering its projection rates. The FSA is consulting on rules that will ensure that investors taking out a retail investment product (a personal pension or a life policy) receive a realistic indication of potential future returns and charges. This will be achieved by firms using projection rates to give investors an indication of what rates of return they are likely to get back, subject to the FSA's maximum projection rates. Following the publication of research by PwC, the FSA is consulting on a reduction in the current projection rates. The Consultation Paper also addresses other issues (including revised mortality rates, and on the explicit Consumer Price Index (CPI) to give investors a fairer indication of future pension benefits.
http://www.fsa.gov.uk/library/communication/pr/2012/065. shtml
30 May: FSA takes action against IFA Patrick Francis O"Donnell over the sale of non-mainstream investments. The FSA has fined Patrick Francis O'Donnell, director of P3 Wealth Management Limited, £60,000 for advising his clients to invest in non-mainstream investments, including in Unregulated Collective Investment Schemes ("UCIS"). In recommending UCIS, O'Donnell failed to comply with the FSA's rules which exist despite UCIS being unregulated in relation to their promotion and sale. O'Donnell advised 57 of his customers to invest in UCIS and other non-mainstream investments in a manner that meant that their investments were unlikely to be suitable for them.
http://www.fsa.gov.uk/library/communication/pr/2012/063. shtml
30 May: Further arrest in FSA unauthorised business investigation. A 54 year old man has been arrested on suspicion of committing offences under the Financial Services and Markets Act 2000 and the Fraud Act 2006. This arrest forms part of the FSAâ€"s investigation into a suspected unauthorised foreign exchange trading scheme.
http://www.fsa.gov.uk/library/communication/pr/2012/064.shtml
29 May: FSA confirms its regulatory fees and levies for 2012/13. The FSA has published a Policy Statement confirming its regulatory fees and levies for 2012/13 following its consultation in February 2012. Overall, the FSA has reduced the amounts that firms will be required to pay by 3.2% of the originally proposed figure. This reduction was achieved by reducing internal spending on IT and by returning contingency monies that had been set aside by the FSA as a buffer in the event of extreme macro-economic events.
http://www.fsa.gov.uk/library/communication/pr/2012/062.shtml
29 May: FSA decides to ban and fine hedge fund CEO Alberto Micalizzi £3 million. The FSA has published a decision notice, dated 20 March 2012, indicating that it has decided to fine Alberto Micalizzi £3 million and ban him from performing any role in regulated financial services. It has further decided to cancel the permission of Dynamic Decision Capital Management Ltd ("DDCM"), the business for which Micalizzi was formerly the CEO, to conduct regulated business. Both Micalizzi and DDCM have referred the matter to the Upper Tribunal. The FSA will contend that between October and December 2008, DDCM suffered catastrophic losses and that Micalizzi lied to investors about the situation in order to conceal these losses and, further, entered into contracts for the sale and resale of bonds in order to gain money for the deteriorating fund despite the bonds not being a legitimate financial investment. During the FSA's investigation, it will further contend that Micalizzi consistently provided it with false and misleading information.
http://www.fsa.gov.uk/library/communication/pr/2012/061.shtml
28 May: Three guilty of insider dealing. Three people have pleaded guilty to insider dealing in a prosecution brought by the FSA. James Sanders, a director of Blue Index has pleaded guilty to ten charges, his wife, Miranda Sanders, has pleaded guilty to five charges, and James Swallow, a co-director of Blue Index has pleaded guilty to three charges. Sentencing will take place on 19 June 2012. Meanwhile, Christopher Hossain has been acquitted of insider dealing. This case involved a parallel investigation by the US Securities and Exchange Commission (SEC), US Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI) which uncovered that the senior partner of a US accountancy firm, Andrew McLellan, had been leaking inside information to these defendants who had then used the information to engage in insider dealing.
http://www.fsa.gov.uk/library/communication/pr/2012/060.shtml
28 May: New Chairman of the Practitioner Panel appointed. Joe Garner has been appointed to take over as Chairman of the Practitioner Panel when Russell Collins retires at the end of May. Joe Garner is Head of the UK Bank and Deputy Chief Executive of HSBC Bank plc.
http://www.fsa.gov.uk/library/communication/pr/2012/059.shtml
28 May: FSA introduces rules telling banks to display depositor compensation arrangements. The FSA has introduced a rule, to take effect from 31 August 2012, requiring banks and building societies to display posters and stickers in branches so that customers can see clearly how their deposits are protected. This would include making clear whether deposits are covered by the Financial Services Compensation Scheme or, if not, what the alternative scheme is, and setting out what level of protection is provided.
http://www.fsa.gov.uk/library/communication/pr/2012/058.shtml
Speeches:
No new developments this week.
Bulletins and newsletters:
No new developments this week.
Final notices:
7 June: Christian Littlewood and Angie Littlewood. The FSA has issued two final notices, dated 31 May 2012, prohibiting Christian Littlewood and Angie Littlewood from performing any function in relation to regulated activity. Both have been deemed not to be fit and proper on the basis that they both entered guilty pleas relating to eight counts of offences of insider dealing in February 2011. These convictions have been held to impugn their honesty, integrity and reputation. Mr Littlewood did contend that the FSA ought not to bring regulatory proceedings against him whilst confiscation proceedings in the criminal courts were still ongoing, as he would be less able to concentrate on and engage with the regulatory process and was unable to secure legal representation for himself in this matter whilst his assets remained frozen, which was unfair. The FSA, however, rejected these submissions, holding that the timing of the regulatory proceedings was appropriate and proceeding to issue the final notice.
http://www.fsa.gov.uk/static/pubs/final/christian-littlewood.pdf
http://www.fsa.gov.uk/static/pubs/final/angie-littlewood.pdf
31 May: Prime Choice Mortgages Limited. The FSA has issued a final notice, dated 31 May 2012, against Prime Choice Mortgages Limited. The FSA gave Prime Choice Mortgages a Decision Notice on 25 April 2012 by which the FSA cancelled the permission it had been granted. Prime Choice Mortgages has not referred the matter to the Upper Tribunal within 28 days on which the Decision Notice was given to it. Therefore, the FSA has cancelled Prime Choice Mortgages Limited's Part IV permission.
http://www.fsa.gov.uk/static/pubs/final/prime-choice.pdf
30 May: Patrick Francis O'Donnell. The FSA has issued a final notice, dated 24 April 2012, fining Patrick Francis O'Donnell £60,000, withdrawing his approval to perform controlled functions within his business, P3 Wealth Management Limited, and prohibiting him from performing any function in relation to regulated activity. Mr O'Donnell did refer this matter to the Upper Tribunal but later withdrew his reference which the Tribunal approved.
http://www.fsa.gov.uk/static/pubs/final/patrick-odonnell.pdf
30 May: Jose Quiambao. The FSA has issued a final notice, dated 30 May 2012, cancelling the registration granted to Jose Quiambao as a small payment institution under the Payment Services Regulations 2009. Mr Quiambao had failed to pay fees and levies owed to the FSA, in the amount of £559.60, which led the FSA to conclude that he was not dealing with them in an open and co-operative way.
http://www.fsa.gov.uk/static/pubs/final/jose-quiambao.pdf
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:
7 June: List of Banks as compiled by the FSA on 31 May 2012. The FSA has published an updated list of banks, dated 31 May 2012. The only amendment to the 30 April 2012 list is that Ansbacher & Co Limited has now been deleted.
http://www.fsa.gov.uk/static/pubs/list_banks/may12.pdf
6 June: Independent and restricted advice. The FSA has published final guidance in relation to the Retail Distribution Review (RDR) rules for restricted and independent advice. The guidance addresses the most common questions that have been raised by firms in order to ensure consistency in the application of the RDR requirements.
http://www.fsa.gov.uk/static/pubs/guidance/fg12-15.pdf
1 June: One-Minute Guide - Handbooks for the PRA and FCA. The FSA has published a one-minute guide for smaller firms summarising the changes to the FSA Handbook that will occur when the Prudential Regulation Authority and the Financial Conduct Authority acquire their legal powers.
http://www.fsa.gov.uk/smallfirms/resources/one_minute_guides/about_fsa/handbook-pra-fca.shtml
1 June 2012: FSA and HMRC Memorandum of Understanding ("MoU") for the exchange of information and conducting of joint visits under the Money Laundering Regulations 2007 and Payment Services Regulations 2009. This Memorandum of Understanding ("MOU") provides a framework for the joint working and disclosure of information between the FSA and HMRC under the Money Laundering Regulations 2007 ("MLR") and Payment Service Regulations 2009 ("PSR"). It is in accordance with the requirement that the FSA and HMRC co-operate and communicate constructively to carry out their functions under the MLR and PSR (known collectively as "the Regulations"). The MOU sets out the role of each organisation and explains how they will work together to minimise the burden on Money Transmitters.
http://www.fsa.gov.uk/static/pubs/mou/fsa-hmrc.pdf
31 May: Slides - Standard Formula and USPs. The FSA has published slides from a presentation, given on 25 May 2012, called "Standard Formula and USPs" about the implementation challenges facing standard formula firms under the Solvency II Directive.
http://www.fsa.gov.uk/static/pubs/international/standard-formula-slides-and-notes.pdf
28 May: George Leavey decision notice. The FSA has published a decision notice, dated 23 September 2011, prohibiting George Leavey from performing any function in relation to any regulated activity. Mr Leavey had demonstrated a serious lack of integrity, competence and capability between September 2007 and April 2009. Specifically, he:
- Directed the business of First Colonial Investments LLP ("FCI") and carried out a significant influence function without FSA approval
- Allowed FCI to place client money in its ordinary business bank accounts in breach of the FSA's rules relating to clients' assets
- Failed to segregate client money from FCI's own money
- Allowed FCI to sell shares to clients when he knew that there was pattern of failing to deliver shares to FCI's clients
- Approved and signed letters inviting clients to invest in First Colonial Wealth Management plc on the basis of unfair, unclear and misleading financial promotions, and
- Allowed FCI to continue undertaking regulated activities after FCI's status as an appointed representative had been terminated
http://www.fsa.gov.uk/static/pubs/decisions/george-leavey.pdf
28 May: Handbook Notice 120. The FSA has published Handbook Notice 120 which sets out the Handbook changes made by the FSA Board on 24 May 2012. These changes included setting fees and levies for the FSA, the Financial Ombudsman Service and the Money Advice Service, and introducing a new rule in relation to disclosure requirements for deposit takers. The notice also contains details of changes made outside of the Handbook, the legislative changes that have been made, and the feedback received during consultations on these changes.
http://www.fsa.gov.uk/static/pubs/handbook/hb-notice120.pdf
UKLA publications:
No new developments this week.
Upper Tribunal (Tax and Chancery Chamber) (formerly Financial Services and Markets Tribunal (FSMT)):
1 June: Athanas Stefanopoulos v FSA. The Upper Tribunal has directed the FSA to issue a final notice cancelling the Part IV permission of Athanas Stefanopoulos for his failure to meet the standard of fitness and propriety required by Threshold Condition 5 and for failing to satisfy the tribunal that he has adequate human or financial resources in relation to his regulated activities as required by Threshold Condition 4.
http://www.tribunals.gov.uk/financeandtax/Documents/decisions/athanass_stefanopoulos_v_fsa.pdf
Financial Ombudsman Service (FOS):
8 June: Motor Insurance - Compensation for "Sloss of use" - Online Technical Resource. The FOS has published a new online technical resource setting out the way in which the FOS decides whether to require a business to pay compensation to a consumer for "Sloss of use". This could occur in situations where the insurer incorrectly refuses to settle a claim, avoids the policy in error or took too long to settle a claim. In this resource, the FOS outlines when businesses will be required to compensate in this way, the factors taken into account, what steps a consumer could have taken to mitigate their inconvenience, and then gives examples of case studies to demonstrate its principles in practice.
http://www.financial-ombudsman.org.uk/publications/technical_notes/loss-of-use-mv.html
London Stock Exchange (LSE):
7 June: Monthly Market Report - May 2012. The LSE has published the monthly market report for May. It states that 34.1 million trades were carried out in May, totalling £170.2 billion which is 10% more than in April. The report also provides a more in-depth breakdown of the individual equity order books.
1 June: WANdisco floats on AIM, raising £15m. The London Stock Exchange has welcomed WANdisco to AIM, LSE's market for smaller and growing companies. The software firm, which has its headquarters in Sheffield and has an office in California, was admitted to trading with a market capitalisation of £37m, and raised £15m in gross proceeds for the Group.
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