Annual General Meeting followed by

Transcription

1 Annual General Meeting followed by Discussion Forum Wednesday 16 October 2013 Today s Topics Investment Suitability the FCA s current expectations Paul Edmondson, d Partner, CMS Cameron McKenna LLP Data Quality & Standards our discussions with FCA Nigel Banfield, Chair of TISA Data Quality ExCo Pensions & Distribution update Malcolm Small, Director of Policy, TISA TeX and other issues Jeffrey Mushens, Technical Director, TISA Savings Schemes current ISA/JISA/CTF issues Peter Shipp, Technical Director of Savings Schemes, TISA 2 1

2 Paul Edmondson Partner CMS Cameron McKenna LLP Suitability of investment advice Paul Edmondson d October 2013 T: E: paul.edmondson@cms-cmck.com 2

3 Looking at 1. What s therule? 2. What s the FCA policy? 3. What s going wrong? 4. What are the elements of suitable advice? 5. How will the FCA scrutinise for suitability? What s the rule? A firm must take reasonable steps to ensure a personal recommendation or decision to trade is suitable for the client. (COBS 9.2.1) By obtaining necessary information on (COBS 9.2) the client s knowledge & experience on the investment or service (including, as relevant, familiarity with investments, education & experience) financial situation (including income, assets & liabilities) investment objectives (including horizon, risk attitude and purpose)

4 What does ESMA say? Firms should take reasonable steps to ensure that the information collected about clients is reliable. In particular, firms should: not rely unduly on clients self-assessment in relation to knowledge, experience and financial situation; ensure that all tools employed in the suitability assessment process are appropriately designed (e.g. questions are not drafted in such a way that they lead the client to a specific type of investment); and take steps to ensure the consistency of client information. Where an investment firm has an ongoing relationship with the client, it should establish appropriate procedures in order to maintain adequate and updated information about the client. ESMA: MiFID Supervisory Briefing Suitability (Dec 2012) What s the rule? To enable the firm to understand the essential facts about the client..and have a reasonable basis for believing the service or transaction Meets the client s investment objectives Is such that he can understand the risks Is such that he can bear the financial risks. (COBS 9.2)

5 What s the FCA s policy on suitability? 1. There are three broad outcomes that we want to achieve a. Consumers get financial services and products that meet their needs 2. The FSA s six retail TCF outcomes remain core to how we expect firms to treat their customers it can be much more effective to intervene early to pre-empt and prevent widespread harm to consumers from happening in the first place, rather than clear up after the event It is likely we will go further than the FSA has previously done in challenging providers on the value-for-money of their products and checking that charging structures can still ensure good outcomes for consumers 5. The new approach will be underpinned by judgement-based supervision. This means that we will be making supervisory judgements about a firm s business model and forward-looking strategy, and will intervene if we see unacceptable risks to the fair treatment of customers. 6 Supported by recent speeches Journey to the FCA (October 2012) Generators of unsuitability some examples 1.Risk profiling tools with complex and limited questions 2.Unclear customer risk category descriptions 3.Failing to confirm customer s level of risk was correct 4.Failure to gather necessary information 5.Inaccurate information or in appropriate use of sales aids 6.Unstructured or overridden process Resulting in Bad advice Can t show suitable advice Wrong level of risk Not fit needs Pay off debt Right term FSA Quality of investment advice in retail banking (Feb 2013)

6 And provider firms contribution to suitability Product design Meeting a demonstrable need Fully understood profile Stress tested Trial marketed Literature clear Distributors trained Distribution monitored Performance monitored What does bad look like?

7 One approach for achieving suitability What should a fact find cover? 1. Hard facts a) Age, income, investments, financial requirements 2. Soft facts a) Objectives b) Actual experience c) Comfort with loss d) Attitude to risk e) Investment horizon f) Variables and uncertainties How should a fact finding process be structured? Better Interview the customer Produce the recommendation Discuss & finalise Worse Customer completes questionnaire Firm produces recommendation Or Customer completes a questionnaire Interview the customer Produce the recommendation Discuss & finalise Or Firm sends draft recommendation Firm discusses with client Firm amends and finalises

8 The elements of suitability (1) 1. What are the customer s s circumstances? cu ces 2. What is their attitude, objective and sensitivity? 3. How do they feel about the possibility of loss and can they afford? 4. What do they need or do they already have it? 5. Is a change cost effective? 6. Is the recommendation the best available option in light of a) The customer s timeframe b) Leaving adequate cash c) Diversification d) Affordability of loss e) Taxation (or clearly state outside scope) f) Pensions and other investments (ditto)? The elements of suitability (2) it is particularly important that the features of the financial instrument involved are assessed against the client s personal circumstances In order to match clients with suitable investments all available information about the client that is likely to be relevant in assessing whether an investment is suitable, including the client s current portfolio of investments (and asset allocation within that portfolio) all material characteristics of the investments considered in the suitability assessment, including all relevant risks and any direct or indirect costs to the client. ESMA: MiFID Supervisory Briefing Suitability (Dec 2012)

9 The elements of suitability (3) 1. A written record 2. Sent to the customer with opportunity to review and comment 3. Setting out a) Circumstances b) Hard & soft facts c) Objectives d) Recommendation in light of a) c) e) Benefits and risks What will the FCA look for? The records to show reasonable grounds for suitability Inspect the files May show insufficient information May determine actual unsuitability May appoint section 166 skilled person But need not do either because customer exposed to risk of unsuitability

10 The suitability domino Advice or trade appears unsuitable Adequacy of systems & controls Adequacy of training Incentivisation of sales force Product design issues Poor customer communications Failure to TCF Authority or competence of Compliance Quality of firm s governance Responsibility of senior management Compensation to customers

11 Nigel Banfield Chair, Data Quality Executive Committee TISA Data Quality Executive Progress update Seminar YouGov Survey FCA & Government Involvement BSI Standards And Kite Mark Funding Next Steps 11

12 Seminar Well attended YouGov presentation BSI Overview of Achieving Standards and Kite Mark Insight into Options for Tracing YouGov Presentation Survey based on over 2000 on-line surveys Communication the key topic Link with preference of handling finances e.g: Current account online and face to face high proportion Pensions in written form Preference not always matched with actuals e.g: preference not always used 12

13 YouGov Presentation 83% were confident the firm had their correct details Only 71% confident they had advised of change of address 78% know where their money is held, 5% definitely didn t! 52% thought customer responsible for up to date records Only 13% have searched for unclaimed money, only half successfully Perceived complexity is barrier to tracing money Only 10% people think enough effort made by firms to trace lost accounts FCA & Government Involvement Ongoing FCA dialogue Keen on our views Input into the current proposals Very interested in the standards David Rich from Heirtrace instigated meeting with Lord Flight Issue to be raised in Parliament 13

14 BSI Standards and Kite Mark Voluntarily developed by experts which documents best practice Taking approx. 6-9 months through an iterative, robust process Involves a steering group and public consultation Resulting document available to be voluntarily adopted BSI Kite Mark allows the standard to be measured and attained Symbol widely recognised by the public Evidence of confidence in the firm and the industry Funding TISA no direct funding Members support needed, some received More required to secure the project TISA reputation for delivering what the industry p g y requires 14

15 Next Steps Confirmation of funding please contact t carol.knight@tisa.uk.com k Project plan to developed with BSI Supporters to form the steering that drives the standards On-going dialogue with FCA 30 15

16 Malcolm Small Policy Director TISA Wraps and Platforms Policy Council Rebates and tax Clean and Super-Clean PS13/1 Successful Seminar Program 32 16

17 Distribution Policy Council D2C special Interest group Adviser Protocols, suitability, on-going appropriateness Post-RDR landscape monitoring Increasing footprint Peter Smith 33 Retirement Policy Council Small pots and transfers Retirement income? Tax relief? Increasing footprint Steven Coe 34 17

18 Centralised Investment Propositions Policy Council Now with Distribution 35 Children s Savings Policy Council CTFs and JISAs Separate or merged? The debate continues

19 Projects TeX for pensions Data Quality Adviser Protocols ISA transfers

20 Jeffrey Mushens Technical Director TISA o About TeX o Share class conversions o Client Assets o Wraps & Platforms o FATCA 20

21 What is TeX? Industry funded, not for profit association. Set up to provide governance for re-registration and electronic transfers Sets membership fees, guardian of the legal agreements and TeX Register. It is a Contract Club Supported by FCA TeX Objectives To allow the electronic transfer & re-registration of ffunds. (UK-registered it unit ittrusts t and doeic OEICs) To allow the electronic transfer of ISA wrappers. Designed for the transfer of clients assets when they move from one platform / nominee / fund manager / wealth manager to another Already pressure from Offshore Funds and SIPP operators to join 21

22 What about the regulators? -1 We have engaged and shared with the FSA the details of the TeX contract club and the principles behind it. The FSA have supported such an industry led solution and confirmed it will help meet the policy expectations as set out in PS11/9. The FSA continue to stress that if their policy objectives are not achieved it may require further rules being introduced to areas of the marketplace which are not working towards making re-registration take place in a reasonable time and efficient manner. The FSA fully support the principle of a consistent standard across the industry together with clarity and transparency to the consumer. FSA 21 December What about the regulators? -2 COBS 6.1G The Tax Incentivised i Savings Association (TISA) has introduced a new register (TeX) designed to meet this rule and speed up re-registration to six working days (from July 2013), which covers all clients, not just retail clients. So, we do not propose to amend this rule. FCA CP13/9 Quarterly Consultation No.2 September

23 Why the Contract Club works One single contract, everyone has the same rules The alternative ti is side letters with every counterparty t Strong Corporate governance Industry directors, representing fund managers and platforms (inc wealth managers and wraps) run TeX 75% majority for changes. Changes need consent TISA directors represent industry as a whole. 7 The Latest 70 Members and 5 Associate Members Another 10 committed : a further 41 in our sights Vast majority of platforms by AUM have joined or committed (over 91%) Over 88% of FUM fund managers have joined or committed TeX chairs working group of suppliers to ensure system inter-operability and review issues. It works! 23

24 Next Steps Monitoring the SLA Pensions Board approval Offshore funds Making it all work for customers 12 Share Class Conversion This is an industry wide issue TISA interested in mechanics of re-registration Conversions and re-registrations may impact SLA FCA Very interested in SLA timings Financial press also interested (plus MPs, ministers, etc) Treatment of rebates sharpens interest 48 24

25 Conversions what s the score? It s complicated Two issues Bulk conversions (legacy to platform) Bespoke and re-registration Making sure we remember the customers

26 Bespoke complications 1 This really is complicated There will be platform specific share classes (super duper clean) What do you do when the acquiring platform doesn t hold the super duper clean class? What do you do when classes have different XDs? 7 Bespoke complications 2 We ve looked at five options, including transversions All are horrible Looking at two options, including ceding party does conversion Firms gone away to look at costs and timings Did I mention it was complicated? Next meet 24 th October 7 26

27 Client Assets Background Objectives of Technical Committee Best Practice Group CMAR CP13/5 Seminars Q&A with FCA 53 Wraps & Platforms Transaction Reporting Share class conversion Unit rebates PS11/9 etc Suitability and appropriateness HMRC/TISA Forum 54 27

28 FATCA Background Progress to date IGA with US IGAs with CDs and Ots OECD IGA? Utility?

29 Peter Shipp Technical Director of Savings Schemes TISA Current issues ISA / JISA / CTF Removal of ordinary residence (from 6 April 2013) Does this simplify procedures? Depository Interests Clarification AIM Stocks qualify (from 5 August 2013) Does this simplify procedures? ISA/JISA Statistical Returns New box on ISA14 / JISA14 and ISA14a / JISA14a 58 29

30 Removal of ordinary residence Previously, ISA investor had to be both resident (for tax purposes), and ordinarily resident Most managers would refuse to accept subscriptions after investor left UK (no longer ordinarily resident ) This has now changed (since 6 April 2013) 59 Removal of ordinary residence Now, ISA investor just has to be resident For any particular tax year, an individual is either resident or not resident for the whole of that tax year Therefore he may remain resident for the rest of the tax year after he leaves the UK - so ISA subscription would still be allowed until the following April On the other hand, he may eventually be deemed to be not resident in which case any subscriptions made in that tax year (including subscriptions made before he left the UK) would be made void and require unwinding 60 30

31 Resident status One Simple rule: Person in UK more than 183 days = RESIDENT Therefore if ISA investor leaves UK after 6 October he is resident for that whole tax year and ISA subscriptions can be made up to end of that tax year Otherwise complicated rules and various tests: Not in the domain of HMRC SSO who monitor ISAs Residency section guidance runs to 50 odd pages! No certainty for ISA Managers where investor leaves UK in first half of the year 61 Resident status The onus is on the investor to inform the ISA Manager of any change in their status Good practice for manager to enquire the residency status of an investor who notifies an overseas address Manager should proceed on the basis of what they are told To refuse subscriptions after investor moves abroad could be challenged if investor still resident for that year would not necessarily avoid an unwinding would be inappropriate if exit is after 6 October 62 31

32 Depository Interests use on LSE Descriptor will identify the listed/traded instrument

33 AIM Stocks qualify for ISAs (from 5 August 2013) EU rules prevented HMT simply adding AIM stocks Solution: Stocks admitted to trading on a recognised stock exchange in the EEA Interaction with other reliefs- set out in Bulletin 712 Previously: Stocks traded on AIM would only qualify if they were officially listed on a recognised stock exchange (anywhere in the world) 65 Dual-listed AIM Stocks shares go here qualify for ISAs (from 5 August 2013) Changes to ISA14 etc. Minister will want to know the effect of this change Shares that qualified prior to 5 August 2013 Shares that only qualified after 5 August 2013 Shares which have only qualified under this new rule (those admitted to trading on an RSE in EEA) are to be reported separately 33

34 Dakota House 25 Falcon Court Preston Farm Business Park STOCKTON-ON-TEESON TEES TS18 3TX