Pink Compliance Manual. For. Appointed Representatives

Transcription

1 Pink Compliance Manual For Appointed Representatives Page 1

2 TABLE OF CONTENTS 1 INTRODUCTION INTRODUCTION TO THE FINANCIAL CONDUCT AUTHORITY RISK IDENTIFICATION RISK MEASUREMENT RISK MITIGATION RISK MONITORING & REPORTING INTERPRETATION AND GLOSSARY INTERPRETATION GLOSSARY OF TERMS HIGH LEVEL STANDARDS - FIRMS PRINCIPLES FOR BUSINESSES THRESHOLD CONDITIONS SENIOR MANAGEMENT ARRANGEMENTS, SYSTEMS AND CONTROLS SENIOR MANAGEMENT ARRANGEMENTS SPECIFIC SYSTEMS AND CONTROLS REQUIREMENTS WHISTLE BLOWING - REPORTING IN CONFIDENCE LOCUMS HIGH LEVEL STANDARDS - INDIVIDUALS APPROVED PERSONS & CONTROLLED FUNCTIONS STATEMENTS OF PRINCIPLE & CODE OF PRACTICE FOR APPROVED PERSONS FIT & PROPER TEST FOR APPROVED PERSONS PRE-APPLICATION DISCLOSURE-KEY FACTS ILLUSTRATION INTRODUCING MORTGAGE BUSINESS TO ANOTHER INTERMEDIARY EQUITY RELEASE HOME PURCHASE PLANS (ISLAMIC MORTGAGES) CLIENT FILE CONTENTS LENDERS RESPONSIBILITIES AUTHORISATION AND RECRUITMENT SCOPE OF FINANCIAL CONDUCT AUTHORITY REGULATION RECRUITMENT APPOINTED REPRESENTATIVES BECOMING A PINK APPOINTED REPRESENTATIVE MONITORING AND RISK RATING RECORD KEEPING VARIATION OF AUTHORISATION RESIGNATIONS CONTROLLERS AND CLOSE LINKS INTRODUCERS INTRODUCERS THE ROLE OF THE INTRODUCER WRITTEN AGREEMENT INTRODUCING BUSINESS TO ANOTHER INTERMEDIARY TREATING CUSTOMERS FAIRLY INTRODUCTION THE SIX TCF OUTCOMES TCF CONSIDERATIONS FOR GOVERNANCE TCF MANAGEMENT INFORMATION (MI) ADDITIONAL SOURCES OF TCF INFORMATION Page 2

3 8 MORTGAGES AND HOME FINANCE: CONDUCT OF BUSINESS (MCOB) HIGH PRESSURE SALES CHARGES/FEES RELIANCE ON OTHERS CLEAR, FAIR AND NOT MISLEADING SCOPE OF SERVICE OWN LIFE CASES SALES PROCESS STANDARD MORTGAGES ADVISED SALES SUITABILITY PRE-APPLICATION DISCLOSURE-KEY FACTS ILLUSTRATION INTRODUCING MORTGAGE BUSINESS TO ANOTHER INTERMEDIARY EQUITY RELEASE CLIENT FILE CONTENTS INSURANCE: CONDUCT OF BUSINESS SOURCEBOOK (ICOBS) APPLICATION & PURPOSE GUIDANCE ON EXPRESSIONS DERIVED FROM THE DISTANCE MARKETING DIRECTIVE QUICK QUOTES INSURANCE COMMISSIONS CHARGES FAIR ANALYSIS AND INDEPENDENCE OWN LIFE BUSINESS BUSINESS FOR OTHER FAMILY MEMBERS THE SALES PROCESS INTRODUCING INSURANCE BUSINESS TO ANOTHER INTERMEDIARY REPLACING EXISTING CONTRACTS PRODUCTS ADVISERS ARE NOT AUTHORISED TO SELL PRODUCT DISCLOSURE ADVISER RESPONSIBILITY ORAL DISCLOSURE INSURERS RESPONSIBILITY WHEN SHOULD DISCLOSURE BE MADE TO CUSTOMERS DISTANCE CONTRACTS DISCLOSURE REQUIREMENTS RENEWAL OF GENERAL INSURANCE CONTRACTS CANCELLATION CLAIMS HANDLING DISTANCE NON-INVESTMENT MEDIATION CONTRACTS WHOLE OF LIFE POLICIES TRAINING & COMPETENCE THE TRAINING AND COMPETENCE SCHEME RECRUITMENT TRAINING MAINTAINING COMPETENCE CONTINUING PROFESSIONAL DEVELOPMENT (CPD) ATTAINING COMPETENCE SUPERVISORS ATTAINING COMPETENCE APPROVED PERSONS FAILURE POLICY LONG TERM ABSENCE COMPLAINTS AND REDRESS COMPLAINTS FINANCIAL SERVICES COMPENSATION SCHEME (FSCS) FINANCIAL OMBUDSMAN SERVICE (FOS) REDRESS COMPLIANCE MONITORING Page 3

4 12.1 HOW WILL I BE MONITORED? RISK RATING: OTHER FORMS OF MONITORING DISCIPLINARY ACTION PINK DISCIPLINARY ACTION FINANCIAL CONDUCT AUTHORITY (FCA) FCA CONSIDERATIONS BEFORE TAKING DISCIPLINARY ACTION TYPES OF DISCIPLINARY ACTION AVAILABLE TO THE FCA FCA CONSIDERATIONS BEFORE WITHDRAWING AN INDIVIDUAL S APPROVAL MARKET ABUSE RECORD KEEPING AND REPORTING RECORD KEEPING REQUIREMENTS NOTIFIABLE EVENTS AND MATTERS FINANCIAL MATTERS CLIENT MONEY REDUCING FINANCIAL CRIME IDENTIFICATION OF THE CLIENT FEES FINANCIAL PROMOTIONS REAL TIME QUALIFYING CREDIT PROMOTIONS NON REAL TIME QUALIFYING CREDIT PROMOTIONS SOLICITED UNSOLICITED COMMUNICATION OF REAL TIME PROMOTIONS OTHER RELEVANT LEGISLATION EXEMPTIONS TREATING CUSTOMERS FAIRLY (TCF) AND FINANCIAL PROMOTIONS CLEAR, FAIR AND NOT MISLEADING UNSUITABLE PHRASES FREE REQUIRED RISK STATEMENTS PROMINENCE PRIZES/COMPETITIONS/VOUCHERS/GIFTS & OFFERS CUSTOMER REFERRALS AND LEAD GENERATION TRANSIENT ADVERTISING ANNUAL PERCENTAGE RATE (APR) MULTI-RATE MORTGAGES EQUITY RELEASE MORTGAGES FEES NON-INVESTMENT INSURANCE PROMOTIONS SAMPLE PREMIUMS DISABILITY AND INCAPACITY BENEFITS ENFORCEMENT APPROVAL OF FINANCIAL PROMOTIONS RECORD KEEPING WITHDRAWAL OF APPROVAL BREACHING PROCEDURES FINANCIAL CONDUCT AUTHORITY (FCA) LOGO SOCIAL MEDIA ADVERTISING PROFESSIONAL INDEMNITY INSURANCE WHAT IS PROFESSIONAL INDEMNITY (PI) INSURANCE? PI INSURANCE FOR APPOINTED REPRESENTATIVES MISCELLANEOUS INSURANCES MATTERS OTHER LEGISLATIVE REQUIREMENTS DATA PROTECTION ACT DATA PROTECTION ACT NOTIFICATION UNDER THE DATA PROTECTION ACT Page 4

5 17.4 CONSUMER CREDIT ACT 1974 A HISTORY CONSUMER CREDIT ACT 2006 A HISTORY CONSUMER CREDIT NOW MOVED TO REMIT OF FCA CONSUMER CREDIT REGISTER OFFICE OF FAIR TRADING A HISTORY MONEY LAUNDERING REGULATIONS APPENDICES Page 5

6 1 INTRODUCTION 1.1 Introduction to the Financial Conduct Authority What is the Financial Conduct Authority (FCA)? The Financial Conduct Authority (FCA) is a regulatory body in the United Kingdom, formed as one of the successors to the Financial Services Authority (FSA). It operates independently of the United Kingdom government, and is financed by charging fees to members of the financial services industry What are the FCA s Statutory Objectives? The objectives of the FCA are: To secure an appropriate degree of protection for consumers. To protect and enhance the integrity of the UK financial system. To promote effective competition in the interests of consumers What powers does the FCA have? The FCA was given statutory authority under the Financial Services Act 2012 and the Government to take action against regulated firms if they breach the FCA rules or the provisions of FSA Act The Act allows the FCA to take action such as: Withdraw a firm s authorisation to conduct regulated business; Discipline authorised firms & individuals approved by the FCA who work in those firms; Impose penalties for market abuse; Apply to the Court for injunctions and restitution orders; Prosecute various offences. The FSA Act 2012 also gives the FCA powers to take action under the insider dealing provisions of the Criminal Justice Act 1993 and the Money Laundering Regulations 1993, including the power to interview people and require production of documents. Further details about the FCA s disciplinary powers are contained within the Disciplinary Action Financial Conduct Authority (FCA) section of this Manual How does this affect me as a Mortgage or Insurance Intermediary? Previously, the activities of advising on or arranging mortgages, general insurance and certain types of protection insurance with no investment element have not been regulated activities under FSMA. Instead these activities have been governed by voluntary codes of practice operated by non-statutory bodies such as the Mortgage Code Compliance Board (MCCB) and the General Insurance Standards Council (GISC). Page 6

7 However, from 31 st October 2004 (for mortgages) and 14 th January 2005 (for insurances) it became illegal to advise on or arrange these products unless the firm and the individual carrying out these activities are authorised to do so by the FCA, or exempt from authorisation, for example, as an Appointed Representative of a Principal firm. The Financial Services Authority (FSA) was disbanded in April 2013 when the Financial Conduct Authority (FCA) took over regulation in the financial markets. Individuals or firms continuing to advise or arrange these products after the dates shown without obtaining authorisation or exemption are committing a criminal offence. The section Scope of Financial Conduct Authority Regulation of this Manual provides more detail on the scope of FCA regulation and the types of mortgage and insurance products that are regulated under the FSA Act FCA firm reference numbers Pink is authorised and regulated by the FCA. For further details of the various permissions, please contact the Compliance Team or access the FCA register at the following link: Pink s firm reference number is What is the FCA s approach to regulation? Once firms are regulated by the FCA, they require them to meet the standards set out in their Handbook of Rules and Guidance and to supply them with information, so that they can monitor the firm accordingly. 'Supervision' is the term they use to describe their day-to-day regulatory relationship with authorised firms. It is their process of monitoring and regulating firms to ensure they are complying with the regulatory requirements. As a general principle, they supervise firms according to the risks they present to their statutory objectives (see above). They assess risks in terms of their: impact (the scale of the effect these risks will have on consumers and the market if they were to happen) and; probability (the likelihood of the particular issue occurring). The nature and extent of their supervisory relationship with an individual firm depends on how much of a risk they consider it could pose to their statutory objectives. The framework they use to assess that risk is called 'ARROW' the Advanced Risk-Responsive Operating FrameWork. They introduced an improved framework (ARROW II) in Within ARROW II, there are two basic approaches they use to supervise firms: the ARROW Firms approach used when assessing risks in individual firms (they also call this 'vertical' supervision); and Page 7

8 the ARROW Themes approach used when assessing cross-cutting risks (i.e. those involving several firms or relating to the market as a whole (they call this 'horizontal' work). They choose one or the other of these approaches, or a mixture of the two, to deal with risks in the most efficient and effective way. The base level of supervisory intensity depends on impact and probability scores they assign to a firm (or group of firms) which, in turn, helps them to determine the nature of the relationship that they have with a particular firm. Medium and high-impact firms In relation to medium and high-impact firms, they coordinate their work through a relationship manager, who carries out a regular risk assessment (on a cycle of one to four years) and determines a risk mitigation programme proportionate to the risks identified. The precise volume and type of work they undertake will depend on the size and riskiness of the firm concerned. They also apply baseline monitoring activities (as this is undertaken for all firms regardless of their impact scores). This involves analysing a firm's financial and other returns, and checking compliance with notification requirements. Breaches and other indicators of risk may be followed up by the supervisory team. For high impact firms, they apply a closer monitoring regime (they call this 'close and continuous' work). This is essentially a planned schedule of ARROW visits to the firm throughout the regulatory period. This allows the supervisory team to meet the firm's senior management and control functions regularly. In addition, for high impact firms which are systemic in nature, the FCA has designed specific programmes of core work to assess the biggest risks on the prudential and conduct side of the business. Where possible, they will centralise their supervision of all of the firms within a group in a single team. When appropriate (for example, if they believe the group has an integrated management and/or control structure) they will produce a combined ARROW risk assessment and risk mitigation programme covering all the firms in a group. Low-impact firms If a firm is assessed as low impact, it does not have a specific risk assessment or risk mitigation programme. These firms are monitored by a combination of baseline monitoring, action in response to risks identified by this information, thematic exercises to monitor compliance standards in a sector and work as part of sector-wide reviews. They believe most small firms pose a low risk to their objectives individually. In practice this means, unlike the larger firms they regulate, they do not have regular risk assessments and are usually required to send regulatory reports only twice a year. Small firms are given the Firm Contact Centre as a primary contact rather than a relationship manager. However, they believe small firms do pose a risk to their objectives collectively. Page 8

9 To regulate over 20,000 small firms they have adapted their risk-based supervisory approach to address this collective risk. In this ARROW Themes approach, they collect information from a variety of sources (e.g. RMAR regulatory returns); analyse the data to identify collective risks; where necessary they investigate the matter further (e.g. questionnaires or targeted firm visits); and they then communicate the results of the research to the industry (e.g. on their website and through the media and national events such as roadshows). They aim to change the behaviour of small firms in a way that improves standards across the industry. By working together, the FCA and small firms can improve consumer confidence in financial advice. In the FCA context, we combine these impact and probability factors to give us a measure of the overall risk posed to our statutory objectives. We then use this measure to prioritise risks and make decisions on what, if anything, our regulatory response should be. We also use it to set our strategic aims and outcomes and to allocate resources based on our regulatory priorities. Risk for the FCA = IMPACT of the problem if it occurs x PROBABILTY of the problem occurring In short, it is designed to: identify the main risks to our objectives as they arise; measure the importance of the risk; mitigate risks; and monitor the progress of the risk. This helps us to plan how we should address those risks and allocate resources based on our regulatory priorities. 1.2 Risk identification The first stage is to identify the risks to the statutory objectives. We do this through intelligence gathering from a variety of sources (e.g. this can be through visits to firms as part of our supervision or enforcement action; information provided by firms monitoring of regulatory returns and similar data; transaction monitoring; sector and environmental analysis; project work etc). We regularly consult a wide range of stakeholders, including market participants and the Consumer and Practitioner Panels, and also use information supplied by the Ombudsman on industry trends and problems revealed through complaints. 1.3 Risk measurement The next stage is to measure the risks. This involves scoring the risk against several probability and impact factors. Both these are weighted as high, mediumhigh, medium-low or low. The probability factors relate to the likelihood of the event happening, and the impact factors indicate the scale and significance of the problem if it were to happen. Combining the probability and impact factors gives a measure of the overall risk posed to our objectives. Page 9

10 1.4 Risk mitigation Our measure of the overall risk will be used to prioritise the risks, help make decisions on the regulatory response and, together with an assessment of the costs and benefits of using alternative regulatory tools help us to determine resource allocation. 1.5 Risk monitoring & Reporting Risk management systems provide management with regular reports to give assurance that risks are being managed appropriately and that internal controls are adequate. Page 10

11 2 INTERPRETATION AND GLOSSARY 2.1 Interpretation In this compliance manual: The words or expressions listed in the Glossary of Terms in the following section will bear the meaning set out alongside them in that section. Except where the context requires otherwise, words denoting the singular include the plural and vice versa; words denoting the gender include both masculine and feminine genders; words denoting persons include firms (whether sole traders, partnerships or limited companies) and vice versa. Unless otherwise stated, a reference to a Chapter, section, sub-section, appendix or schedule, is a reference to a Chapter of, section of, sub-section of, appendix of or schedule to, this Compliance Manual. Headings within the Compliance Manual are for ease of reference only and do not affect the interpretation of this Compliance Manual. All terms that are defined in the FCA Handbook of Rules and Guidance shall, when used in this Compliance Manual, have the same meaning as that defined in the FCA Handbook of Rules and Guidance, unless defined differently in the Glossary of Terms in the next section. The Glossary to the FCA Handbook of Rules and Guidance can be accessed by clicking here: For the avoidance of doubt, the FCA Handbook of Rules and Guidance is the primary set of rules applying to the financial services industry. All regulated firms must abide by the FCA rules and ensure that their Appointed Representatives also abide by those rules. In the event of any doubt over the accuracy of the material in the Compliance Manual, please consult the Compliance Team in the first instance. Page 11

12 2.2 Glossary of Terms The words or expressions listed in the Glossary of Terms below shall be the meaning set out alongside them in that section for the purposes of this manual. Wider and more detailed explanations can be found in the glossary contained in the FCA handbook. Where any conflict arises the definition in the FCA glossary will take precedence Word or Expression Act Adviser Appointed Representative Approved Person Authorisation Client Money Compliance Manual Complaint Compliance Officer Consumer Credit Act 1974 & 2006 Controlled Function Criminal Property Data Protection Act 1998 Meaning within this Manual Financial Services and Markets Act 2000 & Financial Services Act 2012 An individual who gives advice on any regulated product. A firm (or individual) who is allowed to carry on certain regulated activities by an authorised firm (the Principal firm) under a contract. The Principal firm must accept responsibility for the appointed representative's compliance with the Act and FCA rules. Someone within an Authorised Firm or an Appointed Representative firm, who is performing a controlled function. Authorisation under the terms of the Act to give advice on regulated products. Money, which in the course of carrying on mortgage or insurance mediation activities an adviser receives and holds on behalf of a client. Client money could include, for example, money received and held in order to pay a valuation fee to a valuer. However, a cheque made payable to a lender or valuer, will not be client money. Reference guide to enable compliance with the rules of the FCA and the Principal firm. A complaint is any form of dissatisfaction, whether oral or written, from or on behalf of a customer who has suffered or may have suffered a financial loss or failure to provide a financial service. Person within Pink responsible for ensuring that it s Appointed Representatives comply with the rules of the FCA and Pink s own compliance rules. Regulates consumer credit and consumer hire agreements. Provides borrowers with protection from unscrupulous lenders. A position of significant influence in the firm e.g. a Director. The proceeds of any financial crime. This act provides protection for individuals in relation to personal information, collected, held and processed, about them by others. Page 12

13 Durable medium Equity Financial Crime Financial Ombudsman Scheme Financial Promotion Financial Promotions Officer Financial Services Authority (FSA) Financial Conduct Authority (FCA) Financial Services Compensation Scheme Fit & Proper Test General Insurance Home Reversion Scheme Independent advice (Regulated Mortgages Contracts) Initial/Combined Initial Disclosure Document Inducement Insurance A format for information that is: Capable of being used by the recipient. Enables the recipient to store the information in a way accessible for future reference for a period of time adequate for the purposes of the information. Allows the unchanged reproduction of the information. The difference between the value of a property and any outstanding loans secured on it. Any form of crime that produces a financial gain or results in the gain of criminal property. A scheme set up to resolve disputes between consumers and firms concerning regulated products and activities. An invitation or inducement to engage in a regulated activity. This includes all adverts, business cards, letterheads etc. The individual in a regulated firm responsible for ensuring that all financial promotions conform to FCA rules and other statutory requirements. An independent non-governmental regulatory body, given statutory powers by the Financial Services and Markets Act An independent non-governmental regulatory body, given statutory powers by the Financial Services Act The FCA has superseded the FSA. A scheme set up to compensate consumers when authorised firms are financially unable or likely to be unable to satisfy claims against them. An assessment to set out the criteria that the FCA will consider when assessing the suitability of a candidate for a controlled function. Non-life related insurance such as buildings, contents and car insurance. An equity release scheme whereby the customer sells all or part of their property to a company, generally in exchange for a cash lump sum. The customer has the right to occupy the property for the rest of his/her life. On the death of the customer the company sell the property and take a share of the proceeds. Independent advice is where an adviser: Provides advice from the Whole of Market and Enables the customer to pay a fee for that service. Document containing the initial disclosure information, which must be given on first making contact with a customer. An inducement is a benefit offered with a view to bringing about a particular course of action. A form of contract whereby one party Page 13

14 undertakes to protect another against loss caused by a specified event. Insurance Mediation Activity Key Facts Illustration Lifetime Mortgage Locum Mortgage Market Review Money Laundering Money Laundering Reporting Officer (MLRO) Monitoring Mortgage Non-advised sale Non-Investment Life Assurance Non-Real-Time Qualifying Credit Promotion Pink/Pink Pink/Pink authorised advisor Prudential Regulatory Authority (PRA) The activities carried out in connection with advising on, arranging or assisting in the administration of regulated contracts of insurance. An illustration on a particular regulated mortgage contract issued by, or on behalf of, a mortgage lender, which must give an accurate reflection of the costs. A mortgage loan, which allows elderly customers to release equity from their property without the need to repay the loan, until they die or move to residential care. An individual who acts on behalf of an Approved Person or adviser in their absence. The mortgage market review (MMR) was a holistic review which was conducted within the Finance Sector after the Global Finance Crisis. The process of using the financial system to make money obtained from criminal activity into money which is apparently from a legitimate source. The person who acts as the focal point within the firm for the oversight of all activity relating to anti-money laundering including reporting suspicions to the Serious Organised Crime Agency (SOCA) The formal checking of the adherence to the Training & Competence Scheme, Pink Compliance Manual, Pink procedures and the FCA rules. A legal charge taken by a lender over a property as security for a loan. No advice is given and the client s needs are determined solely by the use of pre-prepared scripted questions. Long-term life assurance policy with benefits only payable on death. There is no maturity value, surrender value or option to convert to a policy with an investment option. A Qualifying Credit promotion made where there is no personal contact, i.e. television or newspaper advertisement. Advance Mortgage Funding Limited trading as Pink/Pink. A Pink/Pink employee authorised to give advice on mortgages, general insurance and pure protection products. Formed in April 2013 alongside the FCA. The Prudential Regulation Authority (PRA) is responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. Page 14

15 Principal Firm Principal Individual Professional Indemnity Insurance (PII) Pure protection The firm, which is authorised directly by the FCA to give advice on and/or arrange regulated products (e.g. Pink/Pink). The firm may engage Appointed Representatives but will take full responsibility for their actions. An individual in a directly authorised or Appointed Representative firm who holds a position of significant influence. Insurance against legal liabilities arising from a firm s business activities. A long-term insurance contract in respect of which the following conditions are met: The benefits under the contract are payable only on death or in respect of incapacity due to injury, sickness or infirmity; The contract provides that benefits are payable on death (other than death due to an accident; The contract has no surrender value, or the consideration consists of a single premium and the surrender value does not exceed that premium; The contract makes no provision for its conversion or extension in a manner which would result in it ceasing to comply with any of (a), (b) or (c); and The contract is not a reinsurance contract. Qualifying Credit Promotion Real-Time Qualifying Credit Promotion Regulated Product Risk Rating Supervisor An invitation or inducements that relates to qualifying credit i.e. credit that is a regulated mortgage contract, secured on land. A Qualifying Credit promotion made in the course of a personal visit, telephone conversation or other interactive dialogue Any product, the sale of which is governed by the FCA rules as set out in the Financial Services Act An assessment of the risk posed by an Appointed Representative in terms of compliance with FCA rules. It is used to determine the nature and frequency of monitoring activities. Individual responsible for ensuring that advisers meet the requirements of Pink s Training and Page 15

16 Tied Product Comprehensive Panel (Regulated Mortgage Contracts) Competence scheme. A product that a customer is obliged to purchase through a mortgage lender as a condition of taking out a regulated mortgage contract with that mortgage lender. Advice provided after considering a sufficient number of regulated mortgage contracts which are generally available from the market but not those that can be obtained by going direct to the lender Page 16

17 3 HIGH LEVEL STANDARDS - FIRMS 3.1 Principles for Businesses The Principles for Businesses apply to every firm. The Principles are a general statement of the fundamental obligations of authorised firms under the regulatory system and reflect the regulatory objectives. The Principles set out, in simple terms, the high level standards that all firms must meet and they express what is meant by fit and proper standards set for firms What are the eleven Principles for Businesses? 1. Integrity a firm must conduct its business with integrity. 2. Skill, care and diligence a firm must conduct its business with due skill, care and diligence. 3. Management and control a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. 4. Financial prudence a firm must maintain adequate financial resources. 5. Market conduct a firm must observe proper standards of market conduct. 6. Customers interests a firm must pay due regard to the interests of its customer and treat them fairly. 7. Communications with clients a firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading. 8. Conflicts of interest a firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client. 9. Customers, relationships of trust a firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement. 10. Client s assets a firm must arrange adequate protection for client s assets when it is responsible for them. 11. Relations with regulators a firm must deal with its regulators in an open and co-operative way, and must disclose to the FCA appropriately anything relating to the firm of which the FCA would reasonably expect notice. Page 17

18 3.1.2 Consequences of breaching the Principles Breaching a Principle makes a firm liable to disciplinary sanctions. In determining whether a Principle has been breached it is necessary to look to the standard of conduct required by the Principle in question. Under each of the Principles the onus will be on the FCA to show that a firm has been at fault in some way. What constitutes "fault" varies between different Principles. Under Principle 1 (Integrity), for example, the FCA would need to demonstrate a lack of integrity in the conduct of a firm's business. Under Principle 2 (Skill, care and diligence) a firm would be in breach if it was shown to have failed to act with due skill, care and diligence in the conduct of its business. Similarly, under Principle 3 (Management and control) a firm would not be in breach simply because it failed to control or prevent unforeseeable risks; but a breach would occur if the firm had failed to take reasonable care to organise and control its affairs responsibly or effectively. 3.2 Threshold Conditions The five Threshold Conditions apply to every firm. The Conditions represent the minimum conditions, which a firm is required to satisfy, and continue to satisfy, in order to retain permission to carry out regulated activities What are the five Threshold Conditions? 1. Legal Status - If the regulated activity is effecting or carrying out contracts of insurance (i.e. an insurer), the firm must be an incorporated firm (but not a limited liability partnership), a registered friendly society or a member of Lloyd s. Also, if the regulated activity is accepting deposits, it must be a body corporate or a partnership. 2. Locations of offices A regulated UK firm must have its head office and registered office in the UK or (if not a body corporate) carry on business in the UK. 3. Close Links The FCA must be satisfied that it can effectively supervise a firm, taking into account the structure of the group to which it belongs or the other firms to which it has close links. 4. Adequate resources The FCA must be satisfied that the firm has adequate resources. Adequacy of resources is not just about financial resources. The FCA also looks at whether the firm has adequate management and staff, both in terms of quantity and quality. 5. Suitability The FCA must be satisfied that the firm is fit and proper to be authorised. In assessing this, the FCA looks at the competence and ability of management, as well as its commitment to carrying on the business with integrity and in compliance within the regulatory regime. Page 18

19 3.3 Senior Management Arrangements, Systems and Controls What are Senior Management Arrangements, Systems & Controls? They are a part of the high level standards applying to all regulated firms, which place responsibility for effective management and control of the firm with the Principal individuals and senior managers within the firm. The Senior Management Arrangements, Systems and Controls rules (SYSC) require the Principal individuals and senior managers within the firm to: Take responsibility for that firm s procedures in relation to matters that are likely to be of interest to the FCA. Take reasonable care to organise and control the firm s affairs responsibly and effectively. Matters likely to be of interest to the FCA are those affecting: Confidence in the UK financial system; Fair treatment of the firm s customers; Protection of consumers; Use of the financial system in connection with financial crime What activities do the Rules relate to? The Senior Management Arrangements, Systems and Controls rules apply to: The regulated activities of the firm, and also to: Ancillary activities, which are activities carried on in connection with regulated activities or held out as being for the purposes of regulated activities. For example, the finance and accounts function of firms are not regulated activities, but they could impact on the regulated activities. Therefore the systems and controls should also cover the finance and accounts functions. Communication and approval of financial promotions - see Chapter FINANCIAL PROMOTIONS. The financial arrangements and systems of the firm and the firm s ability to demonstrate its compliance with the financial resources requirements and other tests concerning the suitability and fitness and propriety of the firm Systems and Controls The firm must establish and maintain systems and controls that are appropriate to its business. The systems should be regularly reviewed to ensure they remain appropriate. When taking into account what is appropriate the following factors, as a minimum, should be taken into account: The nature, scale and complexity of the firm s business; The diversity of the firm s operations (including geographical); The volume and size of the firm s transactions; The degree of risk associated with each area of the firm s operation. Page 19

20 3.3.4 Record Keeping The firm must make and retain records of matters and dealings, including accounting records, for as long as is relevant for the purpose the record is made. The records must be capable of reproduction in English, and on paper. Further details of specific record keeping requirements, and the timescales for which records will be retained, appear elsewhere in the relevant sections of this manual. 3.4 Senior Management Arrangements An Appointed Representative firm must maintain clear and appropriate apportionment of significant responsibilities amongst its Principal individuals and senior managers, so that: It is clear who has which of the responsibilities; The affairs of the firm can be adequately monitored and controlled by the Principal individuals and senior managers (and where appropriate, Pink). An Appointed Representative firm must allocate to one Principal individual within the firm the functions of: Dealing with the apportionment of responsibilities referred to above; and Overseeing the establishment and maintenance of the firms systems and controls. The requirements of this section do not apply to Appointed Representative firms who are sole traders, as the sole trader will automatically be the Principal individual responsible for all systems and controls within his firm in these circumstances. 3.5 Specific Systems and Controls Requirements In addition to the various systems and procedures required by other sections of this Manual (e.g. Complaints Register, Notifiable Events etc.), an Appointed Representative of Pink must have in place the following: Organisation An organisation or structure chart for the firm, showing management responsibilities, job titles and clear reporting lines. Evidence of clear delegation of tasks to employees within the business, with regular one-to-one supervision and monitoring to ensure the delegated tasks are adequately completed. Segregation of duties between employees so as to reduce opportunities for financial crime. For example, a single individual should (where possible) be prevented from starting, processing, controlling and completing a transaction. Disaster Recovery Plan A plan for dealing with any major disaster or interruption to the business, such that the firm is unable to access key systems and documents, for example, earthquake, terrorist attack, fire etc. The plan should include the back up of key systems and documents remotely from the firm s normal place of business, so that they remain accessible at an alternative location, contact numbers for Pink s Compliance Team and the firm s clients, and a timescale for when contact will be made. Page 20

21 Contact should be made with Pink s Compliance Team as soon as the firm becomes aware that a business interruption has occurred. Compliance The Appointed Representative must comply with the requirements of the Pink Compliance Manual and any amendments and updates to it as may be issued from time to time. The Appointed Representative must also comply with the FCA rules. If there is any doubt as to whether the requirements of the Pink Compliance Manual or the FCA Rules apply, the FCA Rules will take precedence. Management Information The Appointed Representative firm must supply to Pink information requested which Pink is required to supply to the FCA to ensure compliance with the Rules. The information required is that detailed within this Compliance Manual and any amendments and updates to it as may be issued from time to time. The Appointed Representative firm must organise its affairs so that it is able to provide the information required within the appropriate timescale. Employees and Agents The Appointed Representative firm must satisfy itself of the suitability of anyone who acts for it, both at the time of recruitment and on a periodic basis thereafter. Pink will conduct the recruitment and authorisation procedures for any adviser, supervisor or other function requiring authorisation by the FCA. The Appointed Representative firm must have in place an interview process where they assess skills and competencies of the adviser to their own standards. However, the firm must not offer or make the position permanent until the adviser has passed Pink authorisation programme. The Appointed Representative firm when recruiting any other individual, for example in an administrative or non-advisory role, must also consider the suitability of that person. As a minimum this will include requiring the completion by the employee of an application form or questionnaire relating to the past history, experience, qualifications and skills for the role, and an assessment of the answers given. Inducements An Appointed Representative firm must not offer, give, solicit or accept an inducement if to do so would have a material effect on the duty owed to its clients. An inducement is a benefit offered with a view to bringing about a particular course of action. This does not prevent an Appointed Representative firm giving or receiving indirect benefits, such as gifts, hospitality and competition prizes, so long as they are not of a value that would impair the impartiality of the firm or its ability to meet the requirement to provide suitable advice to clients. In order for Pink to demonstrate that its Appointed Representative firms do not give or receive inducements that materially affect the duty owed to their clients, Appointed Representative firms must maintain an Inducements Register in which details of all inducements given and received are entered Any inducements over the monetary value of 50 should be noted The Inducements Register should contain the following: Page 21

22 Name of the adviser who supplied/received the inducement Name of product provider/lender supplying/receiving the inducement Date inducement received Purpose of inducement Nature of the inducement, i.e., Golf day, vouchers, etc. Cash equivalent of inducement. All inducements must be signed off by the Principal individual/business owner prior to being given/accepted, confirming his opinion that the inducement given or received does not materially affect the performance of the Appointed Representative s duties to its clients. A format for the inducements register can be found in AR APPENDIX 4. Pink Home Loan s Compliance Team will examine the register during audit visits to the Appointed Representative firm and an assessment made as to whether inducements have materially affected the performance of the Appointed Representative firm. If in any doubt over whether to offer or accept an inducement, the Appointed Representative firm should contact Pink Compliance Team for assistance. Outsourcing An Appointed Representative firm should exercise due skill, care and diligence when entering into, managing or ending any arrangements for outsourcing critical or important functions. Conflicts of Interest An Appointed Representative firm should take all reasonable steps to identify conflicts of interest. This can be achieved by: Maintaining and operating effective organisational and administrative arrangements to prevent conflicts of interest from resulting in a material risk of damage to clients interests. Disclosing conflicts where there remains a risk of damage to clients interests. 3.6 Whistle Blowing - Reporting in Confidence The Whistle Blowing policy describes the procedure for reporting concerns, how a concern will be handled and what further action can be taken Effect of the Public Interest Disclosure Act 1998 (PIDA) Under PIDA, any clause or term in an agreement between a worker and their employer is void in so far as it purports to preclude the worker from making a protected disclosure (that is, "blow the whistle about alleged malpractice by the employer"). For the purpose of Whistle Blowing, the term worker also includes Appointed Representative firms. Page 22

23 3.6.2 What constitutes malpractice? Possible malpractice includes (but is not confined to): Conduct which is an offence or breach of law Miscarriages of justice Health and safety issues Damage to the environment Possible fraud and corruption Conduct that is likely to prejudice the standing of Pink Breaches of Internal Rules & Regulations A suspicion arises where you have reasonable belief that one or more of the above has been committed or is likely to be committed. It is fundamental that any genuine concerns that you or any of the employees within your practice have about suspected malpractices are aired Requirements of your firm All advising and non-advising staff should read and familiarise themselves with the Whistle Blowing procedures below, and adhere to them How to raise a concern In the first instance concerns should be raised internally, therefore where applicable, the person should raise the concern with their Line Manager if they have one. The line manager should then contact the nominated person at Pink, the Head of Compliance. If the person with the suspicion feels unable to discuss the matter with their Line Manager or they do not have one, they should contact the nominated person at Pink, as above. If you feel you are unable to discuss the matter with Pink, then you can contact the LSL Company Secretary: By telephone on or In writing to St Trinity House, 3-4 Kings Square, York, YO1 8ZH or By whistleblowingconcerns@lslps.co.uk All written communications must be marked confidential. Concerns can be raised either verbally or in writing. Whichever is chosen, where possible, evidence should be provided to support the concern. Although the person will not be expected to prove beyond doubt the truth of their concern they will need to demonstrate to the person contacted that there are reasonable grounds for concern. Page 23

24 Example: unable to discuss matter Concern Line Manager Pink Home Loans How Pink will respond Initial enquiries will be made to decide whether a full investigation is required. Some concerns may be resolved through immediate action without the need for a full investigation. If a full investigation is required the nominated person within Pink (the Head of Compliance), will write to the person within 10 days confirming: Notification of the concern How they plan to deal with the matter How long they think it will take to resolve the matter. If the person is requested to attend any meetings, another member of staff of their choice may accompany them. When the matter has been concluded the person will be informed of the outcome. In the event of the person being unhappy with the decision given to them by the nominated person they may refer the matter to the Group Compliance Director who will review the process followed and the outcome of the case. If the person has followed the stages detailed but does not believe the matter has been satisfactorily concluded they may take their complaint to one of the relevant external bodies, this list is not an exhaustive one: The Police The Health & Safety Executive The Environment Agency The Audit Commission The Inland Revenue The Financial Conduct Authority The person may wish to speak to their local Citizens Advice Bureau for advice. If the person does take the matter outside of Pink and their own firm, they must ensure extreme care is taken when dealing with confidential information Confidentiality All concerns raised will be treated in total confidence and every effort will be made to conceal the person s identity. However, at some point they may need to come forward as a witness. Should this arise Pink will take all reasonable steps to ensure that the person is protected from any possible reprisals or victimisation. Page 24

25 3.6.7 Untrue Allegations Allegations must be made in good faith. If an allegation is investigated and no wrongdoing is found, no action will be taken against the person. However, where an allegation is made frivolously, maliciously or for personal gain, disciplinary action may be taken against the person. 3.7 Locums Where there is only one adviser or Approved Person in a firm, problems may arise in their absence. In the absence of the only Approved Person, there is no one managing the firm and taking responsibility for the firm s regulatory obligations. In the absence of the only adviser, clients of the firm requiring advice or assistance will be unable to obtain it without going elsewhere. A Locum acts on behalf of an Approved Person or adviser in their absence. An absence could be temporary or long term. Examples of temporary and longer-term absences could be: Temporary absence could arise as a result of planned holiday, training course or illness etc. Longer-term absence defined as more than 12 weeks could arise as a result of serious illness, disability or death. Where there is only one Pink authorised adviser within an Appointed Representative firm, it is required that a designated Locum is in place. A Locum acts on behalf of an Appointed Representative firm in their absence Who is suitable to act as a Locum? The following options are available to Appointed Representative firms when designating a person to act as Locum: Another Pink Appointed Representative firm; A Pink authorised advisor. The Locum should contact their provider of Professional Indemnity Insurance (PII) to ensure that the cover is appropriate for the purpose of acting as a Locum. In the event of an emergency or where neither the Appointed Representative firm or Locum are available Pink will appoint an alternative to act, usually this will be a Pink authorised advisor. Page 25

26 3.7.2 What are the responsibilities of a Locum when acting or ready to act for a Pink Appointed Representative firm? A Locum needs to be: At least authorised to the same level and for the same activities as the Pink Appointed Representative firm they are acting as Locum for; Prepared to operate with immediate notice in the absence of the Pink Appointed Representative adviser; Reliable, conscientious, diligent, trustworthy and adhering to the professional standards and principles of Pink and the Appointed Representative firm; Have the required knowledge, application and good compliance standards required of a Pink Appointed Representative firm What is expected of a Locum? A Locum will deal with the following items in the absence of an Appointed Representative firm. Pink will be available to provide any guidance required by the Locum: Take care of urgent transactions; Complete ongoing transactions; Attend to client queries and needs, always acting in the best interests of the client; Interact with Pink and any requests by Pink. The Locum must agree that any client they deal with remains the client of the Appointed Representative firm. A Locum cannot initiate certain aspects of your business on your behalf, for example a marketing campaign or seminar Do I need a Locum Agreement? Yes, a formal agreement needs to be put in place, a copy of which can be found on the Pink website or alternatively, call the Compliance Team. The completed agreement should be sent to the Compliance Team for approval. A copy will be kept for reference and a further copy returned to the Appointed Representative firm. Page 26