Compliance Matters: week ending 4th October 2024
It was nice to spend a long weekend in Edinburgh hence the gap since my last Compliance Digest. The FCA has been busy and there have been a couple of articles about protection and wealth succession planning. The FCA seems to have a new speech writer, the headline on the FCA website bears a passing resemblance to the content.
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Like London's Roman Wall, financial rules must adapt
Change for the better: the FCA’s evolving approach to enforcement
FCA fines Starling Bank £29milliion for failings in their financial crime systems and controls
Soft skills, or emotional intelligence
Wealth succession planning and IHT
Like London's Roman Wall, financial rules must adapt
In a speech delivered by Sarah Pritchard, executive director, markets and executive director, international at the FT Financial Advice Forum, London, she highlighted
The FCA has a unique opportunity to do things differently and re-draw its regulations for the better of consumers and firms.
This will require open conversations on risk, and the FCA is listening to stakeholder feedback.
Firms should act now, embracing data and digital to innovate and meet the needs of their consumers.
In respect of a new regulatory framework, the FCA promises to be ambition in its thinking and states that it has a once-in-a-generation opportunity to undertake a review of its rules, making sure they match the FCA’s market and its risk appetite. The FCA has also issued a call for input by 31st October in relation to the review.
Other topics covers were the advice guidance boundary following the publication of the Policy Paper DP23/5 in December 2023 and Occasional Paper 65 in September 2024.
The Consumer Duty also raises its head above the Roman Wall.
These seems to be a lot going on behind the scenes at the FCA. Compliance Matters UK Limited can help support you through these changes.
Change for the better: the FCA’s evolving approach to enforcement
Therese Chambers, joint executive director of enforcement and market oversight, delivered at AFME Annual European Compliance and Legal Conference delivered a speech in which the key messages were:
The FCA is adapting its approach to enforcement to meet evolving threats and maximise the deterrent effect.
It is making our investigations faster and more focused to nip financial crime in the bud and send timely signals to markets and consumers.
Enforcement is just one of the FCA’s tools – industry cooperation, assertive supervision and intervention powers are also key in dealing with harm.
As you would expect, the speech highlighted that the FCA will continue to take a hard line on financial crime. It sees collaboration with firms and other enforcement agencies as a key to preventing financial crime. Using one of its other recurrent themes, the FCA will make use of data and technology when fighting financial crime and will expect firms to do likewise. You may want to review your systems and controls for preventing financial crime. Compliance Matters UK Limited is well placed to provide a gap analysis and guidance.
FCA fines Starling Bank £29milliion for failings in their financial crime systems and controls
The FCA has fined Starling Bank Limited £28,959,426 for financial crime failings related to its financial sanctions screening. It also repeatedly breached a requirement not to open accounts for high-risk customers.
When the FCA reviewed financial crime controls at challenger banks in 2021, it identified serious concerns with the anti-money laundering and sanctions framework in place at Starling. The bank agreed to a requirement restricting it from opening new accounts for high-risk customers until this improved. Starling failed to comply and opened over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023.
In January 2023, Starling became aware that its automated screening system had, since 2017, only been screening customers against a fraction of the full list of those subject to financial sanctions. A subsequent internal review identified systemic issues in its financial sanctions framework. Starling has since reported multiple potential breaches of financial sanctions to the relevant authorities.
Therese Chambers, Joint Executive Director of Enforcement and Market Oversight commented: “Starling’s financial sanction screening controls were shockingly lax. It left the financial system wide open to criminals and those subject to sanctions. It compounded this by failing to properly comply with FCA requirements it had agreed to, which were put in place to lower the risk of Starling facilitating financial crime.”
Many firms now use electronic systems to identify and verify their clients. Many of these systems offer continuous monitoring and will alert firms if their clients become a PEP or appear on a sanctions list. Compliance Matters UK Limited can review your AML arrangements and recommend any changes that you should make to improve the robustness of your systems and controls. To learn more about how Compliance Matters UK Limited can support your firm, click here.
Soft skills or emotional intelligence
This is based on an article that was recently published in Professional Adviser.
The importance of financial advisers learning and using soft skills cannot be overstated. The use of soft skills has been a recurrent theme throughout my career – and probably yours.
These skills, such as effective listening, empathy, and clear communication, are essential for building trust, understanding clients' needs, goals, and objectives, and fostering the long-term relationships we all strive for. Indeed, the FCA expects communications to be fair, clear, and not misleading.
The popular term is ‘emotional intelligence’, which it seems to capture the use of soft skills in the client facing environment.
Unlike technical knowledge, which is often the focus of professional exams, soft skills are not typically covered in formal education. This gap means that advisers must seek additional training and real-world experience to develop these crucial abilities.
By honing their emotional intelligence, financial advisers can enhance their client interactions, leading to better client satisfaction and more successful advisory outcomes, whilst building trust and fostering long-term relationships. Where have we read that the FCA wants financial advisers to act to deliver good outcomes for retail clients?
Eight examples of good emotional intelligence:
Active listening involves fully concentrating, understanding, responding, and remembering that the client says. It helps in building trust and understanding the client's needs, goals, and objectives.
Empathy, or showing genuine care and understanding for the client’s feeling and perspectives can help build a strong, trusting relationship.
Communication skills are key. Clear and effective communication is crucial on a number of levels. This includes explaining your financial plan in a way that supports your client’s understanding and in jargon-free language.
Adaptability to the ever-changing financial landscape. Being flexible and able to adjust strategies to meet your client’s goals and objectives is important for long-term success.
Understanding and managing both your emotions and those of your clients can help in navigating difficult conversations and making clients feel supported and understood.
Being honest and open about your fees. Explaining the potential risks and the reasoning behind your recommendations helps build trust and credibility.
Financial planning can be complex, and some clients may be overwhelmed by the detail and amount of documentation they receive. Take the time and patience to explain and answer the client's questions.
Regular reviews are a commitment you will make to your clients. Ensure that you carry out a comprehensive review. Listen to the client and make the necessary changes to their financial plan to keep them on track to achieve their financial goals and objectives.
Eight examples of things you should not do
Do not over promise and under deliver. Make sure you deliver reports to clients in a timely manner after meeting. Do not make guarantees about investment returns or mislead clients about the risks associated with investing.
Using unexplained jargon and technical terms will confuse your clients and may cause them to think you are hiding something
Ignoring your clients or dismissing their concerns, opinions, or preferences can damage your relationship. Your client will want to feel involved with the construction of their financial plan.
Do not make yourself inaccessible. Respond to clients in a timely manner, if you are going to be away, set your email out of office message, and give the contact details of a colleague for urgent or important queries.
We are all subject to the Code of Conduct and the six individual conduct rules. We now have the Consumer Duty to consider. We are all members of an industry professional body. Do not neglect ethical standards that each of these bring to your working day. Remember the old adage. A reputation is hard won and easily lost.
Pressuring clients into making decisions is rarely a good thing. Clients should be able to make informed decisions and consider their options.
Providing generic advice without considering your client goals and objectives will result in ineffective planning and may impact your reputation.
The financial landscape is constantly changing. Do not neglect CPD and remember the C stands for continuous.
To learn more about how Compliance Matters UK Limited can support your firm, click here.
Wealth succession planning and IHT
I am a great advocate of protecting assets. If your client owns a small business, you plan for wealth management and accumulating assets, but do you discuss keyman insurance or relevant life insurance. The same can be said of protection in IHT planning and potentially exempt transfers.
When discussing succession planning, protection can often be overlooked as part of the plan. However, a life assurance policy written into trust is often a simple and effective piece of planning, giving the individual and the family peace of mind.
When discussing potentially exempt transfers as part of IHT planning, do you consider protecting the gift with a reducing life plan (gift inter vivos), this can be an effective tool in the IHT planning toolkit.
Whole of life policies may be considered an expensive option, and a reviewable plan will increase after 10 years but it gives the clients the opportunity to continue the cover, particularly if it written as a joint life second death policy. A guaranteed whole of life plan can be equally cost effective with compared with saving the premium into a deposit account and earning interest on the lump sum as it grows.
How can we help?
It is important that you have robust policies and procedures to ensure your firm delivers industry best practice and good consumer outcomes. 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.
To learn more about how Compliance Matters UK Limited can support your firm, click here.
To learn more about our T&C Support, including access to the Skillcast platform, click here.
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