Regulatory Training Module 3

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Regulatory TrainingModule 3
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Objectives

• Money laundering
• Complaints Compensation
• Retail Distribution Review
• Fit Proper
• Treating customers fairly

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Money Laundering
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Money Laundering

• To prevent the use of financial systems for money
  laundering purposes
• 1989, the Financial Action Task Force on Money
  Laundering (FATF) was created
• An international body dedicated to the fight
  against criminal money, 30 members including the
  European Commission and many of the EU member
  states

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• Money laundering can be defined as
• Terrorist property
• Money or other property that is likely to be used
  for terrorism purposes or proceeds of the
  commission of acts of terrorism
• Proceeds of acts carried out for the purposes of
  terrorism

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Definitions

• Money Laundering can be defined as
• the process of filtering the proceeds of criminal
  activity
• through a series of accounts
• or other financial products
• in order to give it apparent legitimacy
• or to make its origins difficult to trace

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Legislation

• Proceeds of Crime Act 2002
• Deals with the laundering of the proceeds of all
  forms of crime - drug money is no longer separate
  
• The Act extends the obligation to report
  suspicions about money laundering of proceeds of
  all forms of crime - previously restricted to
  drugs or terrorism offences

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• Three main areas to address
• 1 - Concealment or disguise
• The true nature, source, location, disposition,
  movement, rights with respect to or ownership of
  property,
• knowing that such property was derived from
  criminal activity or from an act of participation
  in such activity

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• 2 - Acquisition, possession or use of property
• Knowing, at the time of receipt, that such
  property was derived from criminal activity or
  from an act of participation in such activity

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• 3 - Participation in, association to commit
• Attempts to commit and aiding, abetting,
  facilitating and counselling the commission of
  any of the actions mentioned

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• Two important definitions, in order to clarify
  the
• definition of money laundering
• Property
• Assets of every kind, tangible or intangible ,
  movable or immovable, as well as legal documents
  giving title to such assets
• Criminal activity
• A crime as specified in the Vienna Convention
• (the United Nations Convention Against Illicit
  Traffic in Narcotic Drugs)
• and any other criminal activity designated as
  such by each member state

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Money Laundering offences

• Three principal money laundering offences
• Concealing criminal property
• Arranging
• Acquiring, using or possessing
• These lead to procedures designed to ensure
  that persons working in the financial services
  industry do not become involved in money
  laundering

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• Report suspicious circumstances
• Refrain from alerting persons being investigated
• Give regular training to staff about what is
  expected of them under money laundering rules
  including consequences of failure to comply

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• Appoint a money laundering reporting officer
  This post is a controlled function, and must be
  filled by a person of appropriate seniority

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• Requisition a report at least once in each
  calendar year from the money laundering reporting
  officer.
• This report must assess the firms compliance
  with Money laundering procedures and provide
  information about reports of suspected money
  laundering incidents submitted by staff during
  the year

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The Financial Action Task Force

• Established in 1989 - To co-ordinate the
  international fight against money laundering
• Main office in Paris
• Similar bodies around the world also operate as
  Associate members of the FATF or have observer
  status with the FATF

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Serious Organised Crime Agency (SOCA)

• Public body sponsored by the Home Office
• Has law enforcement powers
• Responsibility to reduce the impact of serious
  organised crime on people and communities
• Includes pursuing and recovering the proceeds of
  crime

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Offences

• Two particularly relevant to financial advisers
• Failure to disclose
• All suspicions of money laundering must be
  reported to the authorities.
• The proceeds of Crime Act 2002 introduced the
  requirement for a person to disclose information
  about money laundering if they have reasonable
  grounds for knowing or suspecting that someone is
  engaged in money laundering.

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• Tipping off
• It is also an offence to disclose to or tip
  off- a person who is suspected of money
  laundering that an investigation is being, or may
  be, carried out

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Client identification

• Most important element in the action against
  Money
• Laundering.
• Evidence of identification is required in the
  following
• cases
• When entering into a new business relationship
  (new account, investment or policy)
• In the case of all new customers

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• ID must be obtained in every case and where there
  is a suspicion of money laundering
• Acceptable forms of ID include
• Current passport
• National identity card with photograph
• Driving licence with photo
• Entry on electoral roll
• Recent utility bill or council tax bill

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Financial exclusion

• What if a client can not produce ID?
• In such circumstances the FSA considers that a
  firm may accept , as evidence of ID
• A letter or statement from a person in a position
  of responsibility
• i.e. Solicitor, doctor or minister of religion
  who knows the client

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Record-keeping requirements

• Institutions must keep appropriate records for
  use as
• evidence in any investigation into money
  laundering.
• This means that
• Evidence of ID must be retained until at least
  five years after the relationship with the
  customer has ended
• Supporting evidence of transactions (in the form
  of originals or copies admissible in court
  proceedings) must be retained until at least five
  years after the transaction was executed

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Reporting procedures

• Each firm must appoint a MLRO
• All members of staff must make a report to the
  MLRO if they know or suspect that a client is
  engaged in money laundering
• The MLRO will then determine whether to report
  this to SOCA using known information about the
  financial circumstances of the client and the
  nature of the business transacted

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Training requirements

• Firms are required to
• Take appropriate measures to make employees aware
  of money laundering procedures and legislation
• Provide training in the recognition and handling
  of money laundering transactions

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• ANY QUESTIONS?

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Complaints and Compensation
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Complaints and compensation

• Consumers in the UK today are better protected
  than they have ever been
• However the FSA does recognise that they cannot
  be given 100 protection
• They should take some responsibility for the
  purchasing decisions that they make
• Secure an appropriate level of protection is
  one of the FSA statutory objectives

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• One step towards this objective is to make it
  easier for clients to know how to complain if
  they feel they have been badly treated.
• Customers who are not happy with a firms response
  can refer the matter to a dedicated independent
  ombudsman
• They can receive compensation

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Complaints Procedure

• The FSA conduct of Business rules contain
  specific
• requirements for the way in which firms handle
• complaints

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• Important to remember that complaints can be
  verbal (in person or telephone) or written
• Both should be treated equally
• Complaints can be divided into two types
• Hard complaints
• financial loss, material distress, or material
  inconvenience have occurred as a result of the
  action leading to the complaint
• Soft complaints
• Those that do not carry such allegations

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• Timescales Hard complaints
• must be dealt with within a specified time
• Written acknowledgement promptly after receipt
• The acknowledgement should provide summary
  details of the firms complaints procedure
• Firms are expected to have dealt with almost all
  complaints by resolution or a final response
  within 8 weeks of receipt
• if a delay to this time, need to write to
  customer to explain why and how long likely to be
  to resolve. Also their right to refer to
  Financial Ombudsman if not happy with delay

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• Record of complaints must be kept for three years
• Soft complaints are no subject to these
  timescales
• The firm must produce a report on hard complaints
  to the FSA every six months

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The Financial Ombudsman Service (FOS)

• An ombudsman is and independent organisation
  whose role is to help resolve complaints against
  a public body or commercial organisation
• Established as a result of the FSMA 2000

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• FOS is divided into 3 sections dealing with
  different sectors of the industry
• Banking and loans
• Insurance
• Investment
• FOS is free to individuals and small businesses
• All firms authorised under the FSMA must be
  members
• Available to complainants who have exhausted a
  firms internal procedures and are not satisfied

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• Complaints to the FOS must be made within the
  later of six years from the event that led to the
  complaint,
• or three years from the date when the complainant
  should have become aware that they had cause for
  complaint

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• The ombudsman can direct a firm to take steps in
  relation to the complainant and the complaint.
  This covers a wide range of non-financial
  actions.
• The ruling can involve both a financial reward
  and a direction regarding steps to take
• Any ruling by the FOS is binding on the firm
• The complainant is still free to pursue the
  matter through the courts if they wish

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The Financial Services Compensation Scheme (FSCS)

• Designed to protect customers who have lost money
  as a result of a firm becoming insolvent or
  defaulting
• Not an alternative to the FOS
• However of it is a complaint against a firm that
  has become insolvent or defaulted the FSCS will
  provide compensation where appropriate

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Activity

• How would you deal with a complaint?

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Retail Distribution Review
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RDR rules and requirements

• Ethical behaviour and social responsibility
• Ethics refers to conscious decisions and actions
  taken by individuals and groups of individuals
  based on moral standards
• Right from wrong and choosing to do right
• Business ethics attempt to apply a set of
  principles to ethical problems that arise in a
  business environment

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Advantages to Ethical behaviour amongst Financial
firms

• Enhanced reputation
• Consumer trust and confidence in the business to
  do the right thing
• Trusts produces loyalty
• A perception of professionalism
• Those more wary of financial products will be
  more likely to consider buying products and
  seeking professional services

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Ethics and the Regulator

• The FSA approach to regulation is based on two
  sets of principles
• The Principles for Business
• The Principles for Approved Persons

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Ethics and the adviser

• Ethical advisers will gain more referral
  business and see lower lapsed business
• As part of the RDR, the FSA has proposed a
  Code of Ethics that advisers must agree to
  follow, which will become obligatory from 1st
  January 2013.

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Professionalism

• The RDR resulted in the FSA issuing the final
  rules on professional standards
• Qualifications
• All advisers must obtain the QCF level 4
  qualification (Diploma in Financial Advice) by
  December 2012.

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• New entrants who started the role after July 2009
  but have to be deemed competent have 30 days from
  the date they began the activity to attain the
  qualification
• Advisers starting the role from 1st January 2011
  are required to pass an appropriate qualification
  within the 30 months

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• Activity
• We have a new Statement of professional standing
• What is this?
• How would you address this as an adviser?
• What actions are required?

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Statement of Professional Standing (SPS)

• From 1st January 2013, advisers will be
  required to obtain an annual statement of
  professional standing (SPS) from an accredited
  body.
• This will provide evidence that the adviser is
  appropriately qualified, has subscribed to a code
  of ethics and has up-to-date knowledge.

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• The code will contain
• The advisers name
• The name and contact details of the accredited
  body and a named signatory to the statement
• The end date of the verification (max 12 months
  from the original verification)
• Confirmation that advisers hold a verified
  qualification
• Confirmation the adviser has signed an annual
  declaration that their knowledge has been kept up
  to date and that they adhere to the standards of
  ethical behaviour.
• Handout

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What is fit and proper?

• Honesty, Integrity and Reputation
• Judged under a variety of
• Criminal record
• Disciplinary proceedings
• Known contravention of FSA regulations or
  involvement with companies that have contravened
  regulation

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Training Competence

• The Financial Services Authority (FSA)'s Training
  and Competence (TC) Sourcebook requires certain
  staff to obtain "appropriate" qualifications for
  their role
• e.g. staff who advise on regulated mortgage
  contracts or equity release transactions need an
  appropriate professional qualification in giving
  mortgage advice. 
• In addition authorised firms must ensure all
  staff are appropriately trained and competent to
  carry out their roles and that appropriate
  supervision is given

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Accredited Bodies

• The role of the accredited bodies will be to
  ensure all advisers maintain the required
  standards of behaviour and professionalism, hold
  appropriate qualifications and undertake the
  required CPD.

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CPD Qualification

• CPD should be geared to the maintenance and
  enhancement of competence
• Under RDR rules from January 2013
• Competent advisers must complete at least 35
  hours of CPD each year
• CPD must contain at least 21 hours structured
  CPD described as an activity which has a defined
  learning outcome

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• Defined learning outcome could include
• Seminars
• Lecturers
• Conferences
• Courses
• Workshops
• Appropriate e-learning
• Researching products, reading newspapers and
  magazines is not considered to be structured
  learning

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Ethics in Practice

• Open, Honest responsive and accountable
• Relating to colleagues and customers fairly and
  with respect
• Committed to acting competently, responsibly and
  reliably
• Ask yourself the questions listed. Do you abide
  by these?

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• Any Questions?

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Treating Customers Fairly
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Training and competence and Treating Customers
Fairly (TCF)

• To demonstrate that TCF is embedded into Training
  and Competence requirements procedures should
  demonstrate how competence is being maintained in
  areas such as
• technical knowledge
• advisory skills
• changes in markets, product legislation and
  regulation
• Options include
• ensuring continuing professional development by
  encouraging reading of the trade press, FSA
  website, newsletters and attendance at roadshows
  and industry training events
• regular file checking, suitably recorded
• use of Key Performance Indicators (KPIs) to
  assess employees' performance against the firm's
  standards, e.g. persistency, complaints,
  compliance monitoring, standards of Fact Find
  completion and of general record keeping
• regular product knowledge tests and accompanied
  calls, monitoring employees' continuing
  competence

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Treating Customers Fairly

• The FSA states that the principle of TCF is
  essential for
• The operation of an efficient retail financial
  services market
• Promoting consumer confidence in the financial
  services market
• And that
• The principle must be taken on and supported by
  senior management in financial firms
• The way customers are treated is an important
  element in the acquisition and retention of
  market share

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TCF outcomes

• The FSA has established six TCF outcomes and
  firms are expected to monitor their performance
  in relation to these outcomes and take action to
  ensure they achieve them.
• Consumers can be confident that they are dealing
  with firms where the fair treatment of customers
  is central to the corporate culture.
• Products and services marketed and sold in the
  retail market are designed to meet the needs of
  identified consumer groups and are targeted
  accordingly.
• Consumers are provided with clear information and
  are kept appropriately informed before, during
  and after the point of sale.

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TCF outcomes

• Where consumers receive advice, the advice is
  suitable and takes account of their
  circumstances.
• Consumers are provided with products that perform
  as firms have led them to expect, and the
  associated service is of an acceptable standard
  and as they have been led to expect.
• Consumers do not face unreasonable post-sale
  barriers imposed by firms to change product,
  switch provider, submit a claim or make a
  complaint.

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Benefits of implementing TCF

• For customers
• Improved financial awareness
• Ownership of suitable products
• Better standards of service
• More confidence in the market and the products

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For Firms and their stakeholders..

• Improve customer confidence in the firm and its
  products
• Improved retention
• Additional sales
• Fewer complaints
• Improved staff morale, efficiently and retention
• Lower operating costs

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The life cycle of financial products

• Design and Governance
• Identifying target markets
• Marketing and promotion
• Sales and advice process
• After-sales information and service
• Complaints handling

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The FSAs Principles of Business

• Maintaining confidence in the financial system
• Securing the appropriate degree of protection for
  consumers
• Reducing financial crime
• Contributing to UK financial stability

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• Any Questions?