UK: Weekly Financial Services Regulatory Update (Week To 07.06.13)

This weekly update from Clyde & Co's Financial Services Regulatory Team summarises new developments as reported by the FCA, the PRA, 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.

If you have any comments on the content or format of the update or if you no longer wish to receive it, or have a colleague who would like to receive it, please email

Consultation papers:

6 June: FCA CP13/3 - Quarterly consultation paper No. 1. The FCA has published a quarterly consultation paper (CP13/3) consulting on miscellaneous amendments to the Handbook. The proposals include:

  • Aligning the claims handling rules with the Consumer Insurance (Disclosure and Representations) Act 2012 (chapter 2)
  • Changing the Perimeter Guidance Manual on mortgage advice, the professional standards requirements and the introduction of a new provision for pipeline applications under the Mortgage Market Review (chapter 3)
  • Correcting the definition of 'platform service' to include execution-only firms that also arrange for the safeguarding and administration of their customers' investments, and consulting on an updated compatibility statement to reflect the FCA's objectives (chapter 4)
  • Updating the appropriate qualifications list in the Training and Competence sourcebook by adding five new qualifications (chapter 5)
  • Making consequential amendments to the Decision Procedure and Penalties Manual and the Enforcement Guide arising from the proposed AIFMUKR (chapter 6)

Responses to the proposals in chapters 5 and 6 should be made by 6 July 2013, and responses to all other chapters by 6 August 2013.

Press release: news/cp13-3-quarterly-consultation-paper-1

Consultation paper: http://www. consultation-papers/cp13-3-quarterly-consultation-no1

Discussion papers:

No new developments this week.

Policy statements:

4 June: FCA PS13/4 Financial Conglomerates Directive - technical review amendments. The FCA has published a policy statement (PS13/4) setting out the final rules implementing Directive 2011/89/EU (FICOD 1), which amends Directive 2002/87/EC (the Financial Conglomerates Directive - FICOD) and certain other directives in so far as they apply to financial conglomerates. The new rules will ensure that consumers can find information about financial conglomerates, which helps the FCA in its objective to secure an appropriate degree of protection for consumers. The new rules will also improve how the markets used by financial conglomerates and financial groups function.

4 June: FCA PS13/3 Restrictions on the retail distribution of unregulated collective investment schemes and close substitutes. The FCA has published a policy statement (PS13/3) setting out new rules on unregulated collective investment schemes and close substitutes in relation to ordinary retail investors in the UK. These new rules follow the consideration of feedback to a consultation paper prompted by the identification of serious problems in the distribution of high-risk, complex investments to ordinary retail investors who may face significant risk of detriment from these non-mainstream investment funds. The new rules will take effect from 1 January 2014.

4 June: FCA PS13/2 Tracing employers' liability insurers - historical policies. The FCA has published a policy statement (PS13/2) setting out new rules on employers' liability (EL) insurance. The statement notes that firms which may have actual or potential EL insurance claims must conduct effective searches of their historical policy records when they receive a request from individuals, their representatives, employers, insurers or intermediaries and a qualifying tracing office. The FCA consulted on proposals to require firms to do this as a result of a number of individuals being unable to trace insurers. The new rules will affect:

  • UK authorised firms that are carrying out contracts of insurance
  • EEA firms passporting into the UK that are carrying out contracts of insurance
  • Managing agents

These new requirements must be implemented by 4 December 2013. tracing-employers-liability-insurers-historical-policies

Press releases:

7 June: FCA secures commitment from high street banks to use a 'retry system' when processing payments to stop unnecessary penalty charges. The FCA has reached an agreement with seven of the UK's largest high street banks that will see them use a same day 'retry system' when processing direct debits, standing orders and future dated bill payments. The new approach has been adopted by Barclays, The Co-operative, HSBC, Nationwide, RBS Group, Santander and National Australia Group. Under the retry process now in place, if the deposited money is not present when a debit is being taken, the bank will retry the payment in the afternoon before finalising the transaction. This will allow deposits to clear and the outgoing payment to be made. In addition, the banks will now also be clear with their customers about the time by which money must be in their account to meet outgoing payments.

6 June: PRA Board appointment. The Court of the Bank of England has appointed Nick Prettejohn, Chairman of Brit Insurance Holdings NV, and a Director of Legal and General plc, to the Board of the PRA, where he took up his appointment on 10 June. Before taking up the appointment Mr Prettejohn resigned from the Board of Legal and General. news/2013/071.aspx

4 June: FCA to ban the promotion of UCIS and certain close substitutes to ordinary retail investors. The FCA has published final rules to ban the promotion of Unregulated Collective Investment Schemes (UCIS) and certain close substitutes (together to be known as Non-Mainstream Pooled Investments (NMPIs)) to the vast majority of retail investors in the UK. The rules mean that, in the retail market, promotions of these riskier and often very complex fund structures will generally be restricted to sophisticated investors and high net worth individuals for whom these products are more likely to be suitable. The ban follows on from extensive work undertaken by the FSA, which found that only one in every four advised sales of UCIS to retail customers was suitable and that many promotions breached the existing UCIS marketing restrictions. Concerns have also been identified in relation to products which are close substitutes for UCIS and in relation to which the existing marketing restriction had no effect. The following investments will be subject to marketing restrictions: units in qualified investor schemes, traded life policy investments, units in UCIS; and securities issued by SPVs pooling investment in assets other than listed or unlisted shares or bonds. The FCA will continue to review market developments and, should it discover similar issues in the future that create the risk of significant potential for consumer detriment, particularly where arbitrage is taking place to avoid the marketing restrictions, it may need to consider extending the scope of the rules. If necessary, the FCA can make a temporary product intervention rule to do this before consultation.


4 June: PRA speech by Andrew Bailey on 'Challenges of prudential regulation'. The PRA has published a speech given by Andrew Bailey, Deputy Governor and CEO of Prudential Regulation, on the challenges of prudential regulation at the Society of Business and Economists Annual Dinner. Mr Bailey began by describing the PRA's role within the new regulatory structure, where its primary objective is securing and promoting financial stability and resilience while supporting the Government's economic policy and objectives for growth and employment. Mr Bailey went on to refer to the Financial Policy Committee's (FPC) March 2013 statement recommending that the PRA take steps to ensure that by the end of 2013, major UK banks and building societies hold capital resources equivalent to at least 7% of their risk-weighted assets. He stated that the PRA is in discussion with the banks on the issue of capital, but noted that higher capital need not lead to lower bank lending. While the PRA has not yet released numbers on the capital requirements for each bank, Mr Bailey clarified that the GBP 25 billion capital shortfall identified by the FPC referred to the shortfall in UK banks' balance sheets at the end of 2012, and that by now firms have made plans to deal with half that number. speeches/2013/speech663.pdf

Bulletins and newsletters:

No new developments this week.

Final notices:

5 June: FCA fines investment firm Sesame GBP 6 million for failing to ensure advice given to customers was suitable and for poor systems and controls. The FCA has published a Final Notice fining Sesame Ltd (Sesame) GBP 6,031,200 for failing to ensure that it gave suitable investment advice to its customers and for failings in its systems and controls that governed the oversight of its appointed representatives (ARs). The penalty is made up of GBP 245,000 for Sesame's advice failings in relation to Keydata life settlement products, and GBP 5,786,200 for systems and controls weaknesses across its investment advice business. All of the failings relate to Sesame's oversight of its ARs. The FCA found that between July 2005 and June 2009 the vast majority of Sesame's Keydata life settlement sales were flawed because:

  • There was a mismatch between customers' stated investment objectives, their attitude to risk and the product sold
  • Suitability letters to customers stated incorrectly that income or capital growth was guaranteed
  • Customers were incorrectly advised that the products were low risk, despite Sesame's own view that they presented investors with "a considerable amount of risk"

The FCA also found that, following further supervisory work between July 2010 and September 2012, Sesame failed to take reasonable care to organise and control its affairs responsibly and effectively, and had failed to improve its oversight of the ARs. In particular:

  • Sesame failed to identify and monitor sales of those products and funds which were not suitable for most customers
  • File reviews by Sesame's internal compliance team were not always suitably robust
  • Problems with record-keeping for ARs continued

Sesame agreed to settle the case at an early stage of the investigation and therefore qualified for a 30% discount. Without the discount the fine would have been GBP 8,616,000.

Final Notice: final-notices/2013/sesame-limited

Press Release:

5 June: FCA Final Notice: Christopher John Riches. The FCA has published a Final Notice pursuant to section 206 of FSMA fining Mr Riches GBP 63,000 for breaching Principles 1 (Integrity) and 11 (Relations with regulators) of the FCA's Principle for Businesses. The FCA also found that he breached section 20 of FSMA. In addition to the financial penalty, Mr Riches has been prohibited from performing any function in relation to a regulated activity as the FCA concluded that he his not a fit and proper person due to a lack of honesty and integrity. Between 12 January 2010 and 30 April 2012, Mr Riches: (i) deliberately and for personal benefit conducted regulated activities despite repeated warnings from the Authority not to do so; (ii) deliberately submitted false and misleading information to the Authority; and (iii) failed to be open and co-operative with the Authority. Were it not for Mr Riches' financial position, the Authority would have imposed a financial penalty of GBP 139,851.77 plus interest. christopher-john-riches.pdf

4 June: FCA Final Notice: Sovereign Financial Solutions Ltd. The FCA has published a Final Notice cancelling Sovereign Financial Solutions Limited's (Sovereign) permission to conduct regulated activities. The FCA concluded that Sovereign was not a fit and proper person because it failed to comply with the regulatory requirement to submit its RMAR for the period ended 30 September 2012. Furthermore, the FCA decided that Sovereign had not been open and co-operative in all its dealings with the Authority, in that it failed to respond to the Authority's repeated requests for it to submit the RMAR, and thereby failed to comply with Principle 11. sovereign-financial-solutions.pdf

3 June: FCA Final Notice: John Dixon. The FCA has published a Final Notice cancelling John Dixon's permission to conduct regulated activities. The FCA concluded that Mr Dixon failed to satisfy the threshold conditions set out in Schedule 6 of FSMA and that he was not a fit a proper person having regard to all the circumstances. The FCA's decision followed Mr Dixon's failure to pay regulatory fees and levies totalling GBP 2,279.63. Furthermore, the FCA found that Mr Dixon was not open and co-operative in all his dealings with the Authority, in that he failed to respond to the Authority's repeated requests for him to pay the overdue balance, and thereby failed to comply with Principle 11.

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 FCA and PRA publications:

7 June: FCA variation of permission form for full scope UK AIFMs. The FCA has published a draft version of the variation of permission (VoP) form to be used by full scope UK alternative investment fund managers (AIFMs) under the AIFM Directive. An accompanying webpage explains that the FCA is gathering feedback on the form and that comments should be submitted by 5 July 2013.

7 June: FCA TR13/1 - Motor Legal Expenses Insurance (MLEI) thematic project. The FCA has published a thematic project (TR13/1) looking at Motor Legal Expenses Insurance (MLEI) from a number of perspectives including its value and usefulness, customer understanding, and the sales process. MLEI is the add-on to the motor policy most commonly sold on an opt-out basis, meaning that the cover is pre-selected by the firm rather than actively selected by a customer. The FCA has questioned whether this practice is more motivated by generating revenue as opposed to meeting the needs of customers. The report found that firms need to re-evaluate their approach to MLEI. In particular, there are three specific areas where firms should review their current practices to ensure they are meeting the needs of their customers.

These are:

  • The basis on which MLEI is provided
  • The quality of explanation of MLEI at all stages of the customer journey, including the claims process, with an emphasis on providing clear, appropriate information
  • The extent of cover provided

The FCA expects motor insurance providers to reflect on these findings and will revisit this work in 2014 to assess how the market has responded. This is the first report on a range of thematic projects which the FCA will undertake this year. tr13-01.pdf

4 June: Handbook Notice No. 2. The FCA has published a Handbook Notice detailing changes made to the Handbook on 3 June. The changes were made under the following 3 instruments:

  • The Financial Conglomerates Directive (FCA Handbook Amendments) Instrument 2013, which makes changes to the Handbook to implement the FICOD 1 Directive
  • The Unregulated Collective Investments Schemes and Close Substitutes Instrument 2013, which makes changes so that firms will only be able to promote non-mainstream pooled investments to certain types of clients
  • The Employers' Liability Insurance: Disclosure by Insurers (No 4) Instrument 2013, which introduces requirements for firms that have actual or potential employers' liability claims to conduct effective searches of their historical policy records when they receive a request

UKLA publications:

No new developments this week.

Upper Tribunal (Tax and Chancery Chamber):

No new developments this week.

Financial Ombudsman Service (FOS):

No new developments this week.

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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