Transcript Slide 1

Regulatory Training
Module 3
Objectives
 Money laundering
 Complaints & Compensation
 Retail Distribution Review
 Fit & Proper
 Treating customers fairly
Money Laundering
Money Laundering
 To prevent the use of financial systems for money
laundering purposes
 1989, the Financial Action Task Force on Money
Laundering (FATF) was created
 An international body dedicated to the fight against
criminal money, 30 members including the
European Commission and many of the EU
member states
Money laundering can be defined as
‘Terrorist property’
 Money or other property that is likely to be used for
terrorism purposes or proceeds of the commission
of acts of terrorism
 Proceeds of acts carried out for the purposes of
terrorism
Definitions
Money Laundering can be defined as
 the process of filtering the proceeds of criminal
activity
 through a series of accounts
 or other financial products
 in order to give it apparent legitimacy
 or to make its origins difficult to trace
Legislation
Proceeds of Crime Act 2002
 Deals with the laundering of the proceeds of all forms of crime
- drug money is no longer separate
 The Act extends the obligation to report suspicions about
money laundering of proceeds of all forms of crime - previously
restricted to drugs or terrorism offences
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
Client identification
Most important element in the action against Money
Laundering.
Evidence of identification is required in the following
cases:
 When entering into a new business relationship
(new account, investment or policy)
 In the case of all new customers
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 as
evidence in any investigation into money laundering.
This means that
 Evidence of ID must be retained until at least five years
after the relationship with the customer has ended
 Supporting evidence of transactions (in the form of originals
or copies admissible in court proceedings) must be retained
until at least five years after the transaction was executed
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 specific
requirements 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
 Hard complaints
 financial loss, material distress, or material inconvenience
have occurred as a result of the action leading to the
complaint
 Soft complaints
 Those that do not carry such allegations
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
Activity
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
 The Principles for Approved Persons
Ethics and the adviser
Ethical advisers will gain more referral
business and see lower lapsed business
As part of the RDR, the FSA has proposed a
Code of Ethics that advisers must agree to
follow, which will become obligatory from 1st
January 2013.
Professionalism
The RDR resulted in the FSA issuing the final
rules on professional standards
Qualifications
 All advisers must obtain the QCF level 4
qualification (Diploma in Financial Advice) by
December 2012.
 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
Activity:
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:
- Criminal record
- Disciplinary proceedings
- Known contravention of FSA regulations; or
involvement with companies that have contravened
regulation
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
Accredited Bodies
The role of the accredited bodies will be to ensure
all advisers maintain the required standards of
behaviour and professionalism, hold appropriate
qualifications and undertake the required CPD.
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:
 Seminars
 Lecturers
 Conferences
 Courses
 Workshops
 Appropriate e-learning
Researching products, reading newspapers and
magazines is not considered to be structured
learning
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:
• technical knowledge
• advisory skills
• changes in markets, product legislation and regulation
 Options include:
• ensuring continuing professional development by encouraging reading of the
trade press, FSA website, newsletters and attendance at roadshows and industry
training events
• regular file checking, suitably recorded
• use of Key Performance Indicators (KPIs) to assess employees' performance
against the firm's standards, e.g. persistency, complaints, compliance monitoring,
standards of Fact Find completion and of general record keeping
• regular product knowledge tests and accompanied calls, monitoring employees'
continuing competence
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…..
 Improve customer confidence in the firm and
its products
 Improved retention
 Additional sales
 Fewer complaints
 Improved staff morale, efficiently and retention
 Lower operating costs
The life cycle of financial products
 Design and Governance
 Identifying target markets
 Marketing and promotion
 Sales and advice process
 After-sales information and service
 Complaints handling
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
Any Questions?