One of the most popular regulatory topics over recent months has been the switch from rules-based to principles-led regulation, with the principles-led approach being spearheaded by ‘Treating Customers Fairly’ (TCF). Very shortly, the Financial Services Authority (FSA) will be issuing new COB rules to be called NEWCOB, which is mainly aimed at the investment sector, but will still impact upon MCOB. ICOB will be amended, but the final details have not been issued, although this may have happened as you read this.
It has been widely reported that the FSA is urging firms in specific sectors to become more familiar with the parts of its handbook that relate to their particular areas of financial services, in order to keep up with any relevant changes to rules and guidance that may be taking place over time. In particular, the FSA is recommending wider use of its tailored, personal and Focus On handbooks – available from its website.
Designed to cover around 70 per cent of the FSA’s regulated firms, tailored handbooks were launched in June 2005, targeted at smaller firms such as mortgage and general insurance brokers, IFAs and friendly societies. There are 14 different handbooks and in our own sector there are separate versions covering all possible combinations of insurance, investments and mortgage firms. Each version contains every part of the FSA handbook needed by a specific firm needs but excludes any irrelevant sections. The included sections contain the same material as the full handbook, though some have been slimmed down.
Personal handbooks were then introduced in April 2006, to make the FSA easier to do business with and therefore contribute to better regulation. Firms can build their own personal handbooks by registering on that section of the FSA’s website. A series of filtering questions need to be answered across 10 topics, including such subjects as prudential categories, regulated activities, Financial Promotions and client types. These questions are very detailed but they do include many tips on how to answer them. Having been set up, a firm’s personal hand book is accessible from a ‘My Favourite Handbook’ link on the handbook section of the FSA’s website,
There are also 20 Focus On handbooks, that organise the information by topic rather than industry sector. For example, appointed representatives; approved persons; Financial Promotions; the Financial Ombudsman Service; perimeter guidance; record-keeping, etc. The specific Focus On handbooks include information relevant to every sector that the FSA regulates.
For those who feel they don’t refer to the handbook as often as they should, and who need to make a fresh start by using one of the shorter versions described above, it may be useful to print the User Guide, which contains questions and answers, instructions for navigating the handbook online, an explanation of the icons used in the handbook, search tips, and other useful information.
Reasons for the reasons why
Q1: The FSA has, on several occasions in the last few months, referred to suitability or product confirmation letters, especially when it has been announcing further enforcement action and a fine for firms breaching the rules. Why weren’t they included in the FSA rules in the first place? Do you think they will be included at some stage? Should firms use them?
Bill answers: There was certainly a strong lobby to the FSA, as the rules were originally being finalised to include suitability letters given they exist in the investment arena. Subsequently when ICOB arrived, the requirement for a needs and wants statement seemed to underline their value. One of the reasons why they weren’t included was that the record-keeping rules were clear and the addition of a suitability letter may have perhaps de-valued their importance. In addition, the policing of suitability letters by the FSA would be difficult allied with the need to provide guidance in what should be an individual client specific communication. That said, I still believe they add value, aid the record-keeping process and assist clients’ clear understanding of the advice and recommendations being made. I wouldn’t be surprised to see them added to the rules at some future date, but of course there is nothing stopping firms using them now.
Are changes afoot?
Q2: Financial Promotions remain a hot topic for many within the industry. Do you think the FSA is going to make changes to remove some of the uncertainties?
Bill answers: Yes, the FSA has already stated it will be amending the Financial Promotions rules as a result of the introduction of Markets in Financial Instruments Directive (MiFID), and we are awaiting, as I write, the proposals for the revision of the COB rules this will form part of that proposal and consultation paper. It makes sense for the FSA to relate the Financial Promotion rule amendments directly to principles-based regulation. It would be sensible to retain clarity around the accuracy of the content, the comparison rules, the approval process at the very least, with perhaps a tightening up of the rules around approving other firms’ promotions. I doubt if the rules here will change much, apart from the reflection of principles-based regulation.
A question about AMI
Q3:
Why should I join the Association of Mortgage Intermediaries (AMI), given the publicity it receives which I can read and use for my business, and who should I speak to if I decide to join?
Bill answers: As an AMI director, I am of course both bias and very supportive of the work the AMI executive does.
Looking at your question from a cost stance, where could you get so much help and support for so little? If membership is in the region of £190 for a small firm, look at the value available from AMI factsheets alone. If you were to say that AMI issued 15 factsheets a year, that’s just over £12 per copy – very cost-effective. My point is there is a lot of detailed guidance within these factsheets that doesn’t get printed in the press. Add this to a free regulation helpdesk, newsletters, plus the huge amount of lobbying carried out with the FSA alone, that all adds up to very good value for money.
