Member Update 16th November 2018
Written on 15/11/2018


Your client has Power of Attorney for her father who has early onset Alzheimer’s Disease.

Who should you complete the risk profile on?

1.The father – because he could sack the attorney

2.The beneficiaries of the will, because the father may be dying soon

3.The client – who is in effect replacing the father

4.The Attorney – who should answer on behalf of the father.

The correct answer is 4.

Legal entity Identifier.
When trusts and company investors were first advised a year ago that they required a LEI it was generally understood that these needed to be renewed on an annual basis, at a cost of £70 each time.  It has become apparent that this is no longer required except for only a very small and very specific range of investment firms.  Even if your LEI has lapsed, it still remains valid!  Confused?  So were we, and so we penned this article to help explain.

Obligations with regard to renewal that must be observed by LEI issuing organizations and legal entities that have obtained an LEI as determined by the LEI Regulatory Oversight Committee (ROC). The LEI ROC is a group of over 60 public authorities from more than 40 countries established in January 2013 to coordinate and oversee a worldwide framework of legal entity identification, the Global LEI System.  So it is unsurprising then to find some confusion in the interpretation!

The LEI is a 20-digit, alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization. It connects to key reference information that enables clear and unique identification of legal entities participating in global financial markets and / or in financial transactions.  They are issued by the Orwellian sounding “local operating units.”

Once a legal entity has obtained an LEI, it is published. This means the full data on the entire LEI population is publicly available at all times.  The LEI data record indicates the status of any given LEI. If a legal entity fails to renew and re-certify its LEI registration by the date stated with its LEI reference data then the registration status of this LEI will be set to ‘lapsed’.

It must be stressed however, that a lapsed LEI remains valid. The status ‘lapsed’ in the relevant data field of an organization’s LEI reference data simply indicates that it is behind schedule as regards renewal, i.e. re-validation of its information against third party sources.

The status ‘lapsed’ therefore, also does not necessarily indicate that the information recorded for the legal entity is out of date. In fact, some legal entities might – erroneously – assume that they would be allowed to skip a committed renewal date, because their information has not changed since their information was last verified. It is important however, to remind registered entities that based on established policy there are no exceptions to the obligation of renewing the LEI by the target date.

Summary? Don’t do anything unless you are asked to by the providers, and even if they do, take a sceptical view, and see for source data on the subject.

Interest-only mortgages - the new PPI?
A new wave of complaints is hitting the mortgage market, concerning interest-only mortgages taken out before the financial crisis.  

Within the last few months we have seen a raft of claims brought against MGI brokers and IFAs claims chasers. They seek a cut of any redress from those who had taken out interest-only mortgages largely around between 2006 and 2010.
It is somewhat peculiar to be seeing such a high volume of cases being reported across the market, when interest rate costs are so low, and in many respects you could argue that as a general rule the interest only mortgage at the time was the best thing to do!  In fact, at the time of the crisis ten years ago it turns out that the best thing you could possibly have done is to borrow even more – bailed out by low rates.  
In 2006/07 the mortgage market had flooded the FOS with claims, representing half of all their complaints almost all relating to endowment mortgages.  Oh the memories of such calm and happy times when equities only ever went up!
Why are we seeing these claims now?   In 2013 the newly-formed FCA issued a warning about interest-only mortgages.  And they repeated this in January 2018 with a press release on the subject, urging action and expressing concern that shortfalls in repayment plans could lead to borrowers losing their homes.  

FCA is the cheerleader of the claims compensation industry – as John Moret has recently written in an excellent article this week about SIPPS in financial adviser magazine – available here.  
When defending these claims, MGIs and IFAs should consider the following:
The time periods that apply to claims – the 7 year period for limitation would have passed and so complainants argue they only knew about this claim within the last 3 years.  So look to see if they re-mortgaged or sold the property before that date.

  1. The scope of your retainer -  advised ongoing, or did your terms of biz specify, as it should have done, that you only continue to advise if invited back.
  2. Risk warnings should have been in your files – seek them out.
  3. Was interest-only mortgage the best solution?   Maybe it was all they could get or afford?

Anyway, if you see these, send them through to us, and we’ll sort it for you.

A quick jog through SMCR 

IFAC have already covered SMCR many times, and will continue to do so over the next year until implementation is set at the end of next year.  This isn’t a EEA initiative, so Brexit will not impact it.  As many observe, and 52% voted, Britain is quite sufficient at producing their own rules, and could do without another set from overseas.
The “Directory”

One consequence of the SMCR is the reduction of information that will be stored on the FCA Register.  Under the SMCR, only Senior Managers will be on the Register. So FCA opened consultation CP18/19 on a new FCA “Directory” to help instead.  Entries will not just be Senior Managers, but will include financial advisers, traders, portfolio managers and Appointed Representatives.  Mortgage brokers continue to avoid the searchlight beams of this register!

FCA is conscious of being reliant on firms to provide up to date information – hence you have all received an email from FCA asking you to check the register!

Fit & Proper; Regulatory references
Existing approved persons need to be adjudged to be “fit & proper”. Under the SMCR, firms will be required to assess and monitor (at least once a year) the fitness and propriety of Senior Managers, Certified Persons and Non-Executive Directors.   This spells the formal end of the old rule whereby Directors self-supervise.  No longer! You’ll be supervising each other!  IFAC will add tests onto BAT to help.

It also spells the end of firms refusing to provide regulatory references.  This will impact the big providers and life offices who are frightened of lawsuits following their references, to to this day simply provide dates of employment – not much help for everyone else in the industry, who ends up recruiting a parcel bomb!  Remember pass the parcel?
Interestingly the FCA almost never ask for references!  

Responsibility maps
A responsibility map is a document that sets out a firm’s governance and management arrangements- an organogram, and if you haven’t got one – we’ll draw one up for you on BAT – but next year.

Handover policies and procedures
Another the requirement to have handover policies and procedures in place.   This isn’t directly applicable to IFA firms, but the FCA wants to see procedure manuals containing everything the next incumbent could reasonably expect to have in order to do their job effectively.  Of course most well run businesses already have one of these, but it is just the sort of thing that the FCA permissions team starts asking for when you request a change in permission.

Impact of the SMCR 

You need D&O in this industry, and since Charlie racked up a claim of just under £1m just to take the FCA to a first stage Tribunal, IFAC know the value.  I have almost given up recommending it to IFAs and mortgage brokers, as the bridge to understanding is very wide.   Put bluntly, PII will bail the firm out of a big claim, but you personally need protection via D&O.  The only exception is sole traders, where the business and the individual are, effectively the same thing.  The costs are usually in the region of £300 – added to the PII quote – get it added at the next renewal.  Most firms are so busy looking for the lowest premium figure they forget the add ons.  The premium will grow under SMCR, but so will the claims.

Automatic smart-search

We recently covered an AML interview with the FCA.  this included these immortal exchanges:
"What do you do when you have a suspicious activity?"
"I report it to the FCA."

Now you all know that he meant to say "NCA" National Crime Agency, don't you?
Well FCA man missed it: "Oh marvellous," he purred.

Later on he recommended SmartSearch, in breach of all neutrality codes at FCA...but anyway it triggered an enquiry by IFAC, head of compliance John Downs.  This is what he said: 

"The quote isn’t encouraging, I regret to say, and now that we have it we can see why people aren’t keen on automated AML checks."

Total Quote = £4,152 - £4,240 per annum

The component elements of the quote are as follows:
£340 Annual Licence Fee - Online Training, Set Up, Accounts Management, Help Desk Support and Future Upgrades

£112 / £156 / £200 Annual PEP & Sanction Licence Fee, and Â£3,700 Search Package Credit, each search is deducted from the search package credit at the following rates:

  • UK Individual AML check - £2.53 per search
  • UK Incorporated Business AML check - £9.25 per search
  • Director's Home Addresses - £2.53 per address
  • UK Business (Other) AML check - £6.40 per search
  • International Individual AML check (Basic) - £7.50 per document
  • International Individual AML check (Full) - £15.80 per document

"3 year term... paid annually in advance ..exclude VAT. ..."
Need i go on?

You can compare this to any deal you may have, but for the time being IFAC are stuck with recommending manual AML checks – passport, driving licence and home visit being the usual, plus a quick check against the sanctions list.  IFAC continue to search for a bulk solution for you.

The FOS published their latest news 146 this week.

There is a large article on final salary pension transfers and a number of case studies. read here

What is interesting is not the usual post match analysis and blame as decided by the FOS, but rather the large number of “complaint upheld” awards made “in the moderate band” which means approximately £500 is awarded to the complainant for distress etc, even though the adviser has done nothing legally wrong.  

These cases are final salary transfer based and often reflect the stress caused by the 90 day timeline on a massive financial decision.  Clients approach advisers inside that window and the lack of a clear answer given promptly leads to disappointment and distress.  Some of the advisers correctly advised not to transfer, but were deemed to have not managed client expectations in the right way.

With advisers winning two thirds of all complaint cases it is clear the FOS are now looking at a half way house after the criticisms of the recent TV documentary, that showed FOS apparently favouring advisers.  Even if your case is legally watertight, the indications from this rather long issue is clear – you may well end up paying £500 for not acting quickly enough, or mis-managing expectations.  

This neatly describes the tension all advisers feel as they enter highly technical and skilled work.  Trying to balance that with slick admin and finger clicking communications is a real challenge.  No one likes to be interrupted answering phone calls, texts and emails while writing a 26 page SR on DB transfer case.  

All news