3 Regulatory Training

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 appa

Regulatory Training

Module 3

 Complaints & Compensation

 Retail Distribution Review

 Fit & Proper

Treating customers fairly

Money Laundering

Money laundering can be defined as

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

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

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

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

3 - Participation in, association to commit

 Attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the actions

mentioned

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

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

 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

 Appoint a money laundering reporting officer

This post is a controlled function, and must be filled by a person of ‘appropriate seniority

 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

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

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

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

 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

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

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

Record-keeping requirements

Institutions must keep appropriate records for use asevidence 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

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

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

ANY QUESTIONS?

Complaints and Compensation

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

 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

Complaints Procedure

The FSA conduct of Business rules contain specificrequirements for the way in which firms handle

complaints

 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

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

 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

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

 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

 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

 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

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

How would you deal with a complaint?

Retail Distribution Review

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

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

Ethics and the Regulator

The FSA approach to regulation is based on two sets of principles:

 The Principles for Business

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 1stJanuary 2013.

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.

 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

We have a new Statement of professional standing:

 What is this?

 How would you address this as an adviser?

 What actions are required?

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.

The code will contain:

 The adviser’s 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

What is “fit and proper”?

Honesty, Integrity and Reputation

Judged under a variety of:

Training & Competence

 The Financial Services Authority (FSA)'s

Training and Competence (T&C) 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

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

Defined learning outcome could include:

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?

Any Questions?

Treating Customers Fairly

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:

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

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

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.

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

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

For Firms and their stakeholders…

its products

 Additional sales

 Improved staff morale, efficiently and retention

The life cycle of financial products

 Identifying target markets

 After-sales information and service

The FSA’s 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