Compliance Digest - 19th July 2024
It has been another relatively quiet week, apart from the King’s Speech – as ever, the devil will be in the detail as legislation is brought before Parliament. Here is this weeks Compliance Digest with a summary of some of the issues that have come into my industry news feeds this week.
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Intergenerational financial planning
Vulnerability, Consumer Duty one year on
PSR and FCA launch joint call for information on big tech and digital wallets
FCA issues warning as it continues to identify ‘low value’ products
Consultation on draft guidance on supporting the identification of APP scams and civil disputes
Intergenerational financial planning
Here are some questions to ponder:
Who are your wealthiest clients?
How much of your assets under management do they represent?
What is their average age?
Who will inherit their wealth?
The answer to the final question is a key to the future of your business. I have made an assumption that you know who the beneficiaries of your clients’ Wills are, if not, why not. Are the Trustees and Beneficiaries also your clients?
It is said that the UK’s largest transfer of intergenerational wealth will take place over the next 30 years, it could be worth over £5 trillion. As the financial adviser to the top generation, you are best placed to know where the wealth is invested and to know your client’s aspirations as to how it will be distributed once your client passes away.
Two more questions:
is your client’s Will up to date?
do they have Lasting Powers of Attorney in place?
These are two questions you should be asking as part of your KYC. A supplementary question is, are the provisions of the Will efficient from a tax perspective given the constraints of your client’s wishes.
Once you have identified who the attorneys and Trustees are, then, asking to be introduced to them will allow you to explain what you do for your clients, find out if they have advisers of their own and cement yourself as the ‘go-to’ person for everything regarding your client’s financial situation.
If you want to retain the assets as they flow between the generations, you will need to position yourself as the financial adviser to your clients’ heirs and successors, which may be easier said than done if they have established advisory relationships. You will want to start building the relationship with your clients’ beneficiaries now. Help them understand the planning you are putting in place to prepare them for the wealth that will come to them. The more engaged they are with you now, the more likely they will seek your advice when they inherit.
Depending on the age of your clients and their beneficiaries, you may need to start thinking about different ways to communicate, will you need to make use of digital platforms and less traditional ways of communication.
This is a challenge, and one you should start thinking about now.
Compliance Matters UK Limited can help you put the foundations in place for retaining intergenerational wealth, contact us now for an initial consultation.
Vulnerability, Consumer Duty one year on
The FCA began the discussion about consumer vulnerability in February 2015 with Occasional Paper No.8 when it first defined a vulnerable consumer as “someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care”. On 15th March 2024, the FCA announced that it will review how firms are acting to understand and respond to the needs of all customers, including those with characteristics of vulnerability.
During the implementation of the Consumer Duty, the FCA made it clear that how firms treat clients with characteristics of vulnerability would be the litmus test of how embedded the Consumer Duty is and how firms are working towards ensuring good outcomes for their retail customers.
One year on, what are the indications and how far have firms gone along the journey to supporting customers with characteristics of vulnerability, whether it be temporary, permanent, or transitory. According to the FCA’s Financial Lives survey, one in three adults say they have experienced a life event that has either put themselves, or somebody close to them, in harm’s way.
The problem with this is that many of these events are transitory. Other issues, including data gathering, also serve as a hinderance. The term ‘vulnerable’ in itself is often deemed as offensive, which can make conversations between investment professionals and their clients challenging.
That being said, the regulator’s Consumer Duty Implementation report in February found that firms are improving how they cater to vulnerable customers overall. However, areas for improvement that were flagged include being able to track vulnerable customers across multiple product sets, prioritising the identification and support of vulnerable clients, and even asking consumers to identify themselves as vulnerable and then “unnecessarily requesting evidence of this”.
There is a suggestion that firms might work through some case studies from within their own client banks to identify how best to work with vulnerable clients.
The FCA is now reviewing firms’ treatment of customers in vulnerable circumstances and will share its findings by the year end. But in the meantime, vulnerable clients should be at the very top of the priority list for firms. Clients are at the centre of everything we do. It is absolutely essential to safeguard the financial health of those in vulnerable circumstances.
Compliance Matters UK Limited can help you put in place the foundations for addressing the needs of vulnerable clients and can discuss various models for identifying vulnerability, contact us now for an initial consultation.
PSR and FCA launch joint call for information on big tech and digital wallets
In a press release published jointly by The Payments Systems Regulator and Financial Conduct Authority are seeking views on the benefits and risks digital wallets bring to people and businesses. The Call for Information is open until 13th September.
The use of digital wallets has grown rapidly over the last few years, and it is likely that more than half of UK adults now use one. With Apple Pay, Google Pay and PayPal being three of the most widely used digital wallets in the UK today, digital wallets have become an increasingly important touchpoint between big tech firms and UK consumers.
The regulators are therefore keen to better understand the impact on consumers and businesses that digital wallets’ increasing popularity creates, including:
the range of benefits that digital wallets bring for service users;
whether there are any features that mean payments do not work as well as they could for consumers and/or businesses;
their role in unlocking the potential of account-to-account payments and how they could impact competition between payment systems; and
whether digital wallets could raise any significant competition, consumer protection or market integrity issues, either now or in the future.
Firms impacted by the PSR can contact Compliance Matters UK Limited to help with a review of systems and controls contact us now for an initial consultation.
FCA issues warning as it continues to identify ‘low value’ products
In a speech at the Managing General Agents’ Association conference, Lisa Sturley, the FCA’s head of market interventions for insurance said that the FCA has identified further “low value” insurance products. Ms Sturley also said that the FCA would continue to take action where persistent issues were identified. As an example, she cited the FCA’s intervention on guaranteed asset protection insurance (GAP) earlier this year. A summary of the speech appeared in Insurance Post.
The speech also covered product governance in which the FCA observed casts of managing general agents (MGAs) taking the lead on product approval, design, pricing, distribution strategy, product reviews, fair value assessment, with the insurers often stepping back. Insurers were reminded of the FCA’s expectation that their senior management have adequate product oversight and governance frameworks which evidence effective product approval and fair value.
Consultation on draft guidance on supporting the identification of APP scams and civil disputes
The Payment Systems Regulator has published CP24/10 Supporting the identification of APP scams and civil disputes, together with a summary.
Authorised push payment (APP) scams are high on the regulatory agenda also that of HM Treasury, this is another element in the fight to prevent the scams. The CP seeks to distinguish between an APP scam and a civil dispute. The closing date for comments is 8th August.
Firms impacted by the PSR can contact Compliance Matters UK Limited to help with a review of systems and controls contact us now for an initial consultation.
How can we help?
It is important that you have robust policies and procedures to ensure your firm delivers industry best practice and the four outcomes of the Consumer Duty. If you would like Compliance Matters UK Limited to review your compliance systems and controls, schedule a free, no-obligation consultancy call with us today.
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Ian Ashleigh
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