The FSA has been carrying out covert monitoring of structured product advice and has asked a number of structured product providers to keep an eye on IFA firms, as part of a discreet review of the controversial sector.

The regulator has written to organisations in the last few months asking them to monitor the IFA firms who introduce business to them and conduct due diligence of the firm’s business model, client type and future plans. A shadow or stealth monitoring process?

The secretive ‘snooping’ by the watchdog has angered a number of financial advisers and providers, many of whom have privately condemned the tactics.

Arthur Childs, managing director of Surrey-based Arch financial planning and a CEI Client, said: “You cannot really use product providers to be the tools of the regulator. It is pretty clear what we have to do as IFAs and financial planners.

“We produced a guide to structured products so our advisers are singing from the same hymn sheet.

“I would be a bit annoyed if I found one of the providers was giving us the third degree over whether we were suitable or not. It seems a strange way of dealing with it. The FSA has done this in the past with people selling life bonds. It is a bit crazy”

Who will be next to be asked to monitor IFAs in the psuedo-regulator army recruited by the FSA?

That is over 3 times last year! Figures released by Wolters Kluwer Financial Services under the Freedom of Information Act found that the FSA has already issued fines worth £941,500 directed at IFAs, during the first half of 2010, which is a significant increase from the £236,676 that IFAs coughed up to the City regulator in 2009.

Last year, IFA fines amounted to just 0.7 per cent of the total penalties. But this has now spiked to 1.5 per cent of total issued in 2010 so far.

Mary Stevens, regulatory editorial UK manger from Wolters Kluwer Financial Services, said: “Even though we are only part way through 2010 the fines percentage is well over double last years’ final total reflecting the FSA’s increased pressure on IFAs as it gears up for the retail distribution review implementation.”

Lee Werrell, CEO of CEI Compliance Consultancy said “The FSA fines are not always a measure of findings as many investigations take a long time to materialise or fizzle out. There is no doubt that S166 activity is increasing, and that is derived from many reasons. Many distributors still stick their head in the sand and pretend that it won’t happen to them but they need to be aware that S166 actions can cost them well into 6 figures for a modest organisation of only a few advisers. Prevention is always cheaper than cure.”

CEI have recently produced a Guide for Senior Managers on S166 Reports and this can be downloaded free from HERE.

Protection advisers wanting to join Sesame are now being required to pass the Chartered Insurance Institute’s CF three financial protection exam within three months of joining the network.

The company has given existing members who specialise in protection two years to pass the qualification.

Learning manager Graham Addison says existing advisers have been given a longer time period to pass as Sesame already has evidence of the advice these businesses are giving.

He says: “It just seemed ridiculous to us that a directly authorised adviser has to have a protection qualification to give advice while there be may others out there who only sell protection that do not have a qualification. That does not seem quite right and if you get protection wrong it can be quite serious.”

There is much discussion and conjecture about the final look of the financial services landscape post-Retail Distribution Review. There is a sector within the RDR proposals that may have been overlooked or dumbed down; the Recognised Professional Body (RPB) advisers.

 Many of these practices, attached to solicitors and accountants’ practices are often run by themselves and whilst overseen by a partner, they may not be fully aware of the changes planned and the FSA regulatory compliance requirements that are impacted by these changes.

In CP10/14 Delivering the RDR: Professionalism, the FSA states that it is worth noting that existing professional bodies operating in the retail investment advice sector and elsewhere, typically operate sanctioning regimes for their members. For current retail investment adviser professional bodies, these disciplinary regimes are not assessing compliance with the FSA’s regulatory requirements, but with the professional body’s own standards.

 By implementing the new “Statement of Professional Standing” (SPS) by accredited bodies for advisers in the future, it would be reasonable that these bodies will have disciplinary measures that involve a range of sanctions. Included in this range would be the withdrawal of the SPS and notification to their firm that this is the case. Under Principle 11, the firm would then be obliged to inform the FSA as this would impact on the rules for Approved Persons under FIT.

Email rdr@FSAregulatoryCompliance.co.uk to get your firm compliant.

 The FSA are introducing a requirement for firms to ensure that their advisers provide documentary evidence of verification. They believe that the potential threat of the body withdrawing such evidence would be an effective deterrent against non-compliance with requirements. This will only be effective if the RPBs are up to speed with the RDR implementations and this element does not get overlooked or considered irrelevant. There is a risk that the FSA rules are ignored as RPBs consider their own professional body as the overseers instead of their own firm’s responsibility.

 FSA regulatory compliance requirements are in a huge state of change, like white water rapids, and it is always best to ensure you have grasped the entire impact on your distribution model whether an RPB, IFA, stockbroker or Friendly Society. Contact CEI Compliance for a FSA Regulatory Compliance Health-check and evaluation before you are put under the spotlight. Call 07092 289901 or email rdr@ceicompliance.co.uk TODAY!

The link to CP10/14 is here

Clarkson Hill is rumoured to be in talks with appointed representatives later today as concerns continue over its regulatory capital requirements.

There has been no trading activity on its alternative investment market listing since markets closed on Monday 2 August.

The national IFA firm consisting of 340 advisers with 10 branches, has been in continuing discussions with the FSA over its regulatory capital requirements despite borrowing £588,000 from two directors.

Ron Pritchard and Mike Robinson, two of the directors of the company, have provided subordinated loans, yet to be approved by the FSA, to be repaid after two years at 5 per cent interest per annum.

Full article by Marc Shoffman of  FinancialAdviser  Here

The Financial Services Authority, in their wisdom have increased their enforcement activity and a surge of S166 Skilled Persons Reports demands have arived through the doors of many authorised firms in the UK.

As many people are aware, the S166 Report is a tool used by the FSA to better understand what goes on within a company in its treatment of customers, front and back office procedures and to ensure consistency between policy and practice for all advisers.  

 This tool can be used for diagnostic, monitoring, preventative or redial purposes and this will vary depending on the level of perceived risk and the standard of evidence previously collected and assessed by the FSA. If general and specific concerns are apparent, the FSA may instruct investigators under Section 167 or Section 168 of the FSMA 2000 and sometimes these may be separate investigating teams.

While the report can sometimes be seen as a personal attack on advisers or the companies they work for, as well as being an undesirable cost, there are a number of benefits that can be gleaned from the experience. Benefits could be;

• Comfort that the firm’s contemporary written procedure has been adopted and embedded within the sales process and that there is or was general adherence to it.
• Identification of any potential systemic errors, inconsistencies and anomalies that have occurred through evolution, legacy practices or habit, but may remain masked by local knowledge and practice
• Provide a focus and direction for recommendations on rectification and remedial actions that may already have been started and are designed to enhance or strengthen the already robust system.
• Identification of any areas and placing them on the tactical radar and which may need review or revision, providing a firm with a more accurate risk from a purely regulatory perspective.
• Show the firm where blindspots exist in their current practices or governance

No one likes criticism, and especially not from an almost faceless bureaucracy that appears to descend out of the blue for a few hours, pick holes in seemingly robust and happy client files, note every absence of ideal documentation and then respond with a S166 Skilled Persons Report demand some time afterwards with no other notification in the meantime.

The S166 process can appear daunting and expensive – get the facts straight, get the process right and take control. Use a firm that is not just a one person outfit, but a firm that can provide a skill match to your business and a Quality Assurance and project oversight, steering everything toward a positive and accurate report for the FSA. If the content is lacking, they will either order another S166 at your cost, or enter into supervisory proceedings, suspension or worse. Get it right first time, get CEI Compliance.

Details of S166 can be found at wwwS166.co.uk.

Compliance Consultants within the UK are in extremely short supply. Whilst banks and insurance companies install and augment their regulatory obligations, such as Solvency II, they have pulled in all the expertise from what was a bouyant marketplace.

Daily rates for freelance consultants have skyrocketed as all the quality and efficient consultants have been locked into medium to long term contracts on quality projects, that recruiters are now trying increased rates to lurethem into breaking their contracts, something any consultant with a long term view would never do, as the marketplace is small and word gets around.

Niche Consultancies are struggling to find quality consultants for the ad-hoc projects that are arising more and more frequently, such as remedial actions, enforcement actions and FSMA S166 Skilled Persons Reports. CEI Consultancy has a reliable bank of experienced and qualified consultants but is always looking for more as the value for money projects we tender for are snapped up, over and above the more expensive “practices” that have to charge for a small army of consultants, many whom never even see the client or their premises.

If you are a qualified or experienced Compliance Consultant, especially in sales training or S166 reports as well as other specialisms, please contact us at consultant@ceicompliance.co.uk .

If you are on notice of a regulatory visit in the near future, you may need to prepare thoroughly so that the visit goes smoothly. Most firms need help in preparation but you can find some ideas on our page http://www.cei-compliance-limited.co.uk/regulatory-visits.html

You can also get a TCF guide and idea checksheet by sending a blank email to tcfguide@cei-compliance-limited.co.uk

good Luck!

In 2008/2009 there were 56 Section 166 Reports completed costing a total of £12,800,000. Compare this to 2005/2006 when 17 reports were completed at a total cost of £3,700,000 and you will see the average case has escalated in cost, mainly due to the big consultancies charging into the area with their large teams of analysts and managers.

In 2008/2009 the largest single cost case totalled £2,400,000 which leaves the average of the other 55 cases being over £189,000 each. The good news is the cheapest cost was for a one man band at £3,000.

The areas covered in the latest year’s S166 reports were Client Money, Corporate Governance, Past Business Reviews, TCF, Systems and Controls, Capital adequacy, Regulatory Reporting and Market Abuse.

The FSA are increasingly using this tool and you could be spending more money than you need to. Call CEI for a quote on 07092 289901 or visit www.s166.co.uk for more information. CEI – Providing Regulatory Help When You Need It.

The High Court has today ordered John Anderson, Kenneth Peacock and Kautilya Nandan Pruthi to pay approximately £115m to the FSA for unlawfully accepting deposits without authorisation from the FSA.

The ruling follows another High Court judgment on March 25, 2010 which ruled that Pruthi, Anderson and Peacock, under their trading names Business Consulting International, John Anderson Consulting and Kenneth Peacock Consulting, unlawfully accepted deposits from UK consumers.

The Judge ordered Pruthi to pay £89,798,938, Anderson £13,197,076. and Peacock £11,645,053.

The FSA says it will be seeking to enforce the judgment and return money that can be retrieved to investors who had dealings with Pruthi, Anderson and Peacock.

But the regulator is warning investors that it is unlikely that money owed by Pruthi, Anderson and Peacock will be repaid in part or at all.

FSA director of enforcement and financial crime Margaret Cole was seen to be pleased with the outcome.

See http://www.moneymarketing.co.uk/1014289.article?cmpid=MME01&cmptype=newsletter