Regulation Round Up- October 2024
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Welcome to the October edition of Regulation Round Up! This month, Hannah Keane brings you the latest updates on regulatory changes and key developments in the financial services world. HMRC has issued new guidance on pension regulations in Newsletter 162, offering clarity on issues surrounding the abolition of the Lifetime Allowance. We also look at the significant ￡29 million fine imposed on Starling Bank by the FCA for financial crime control failings.
Additionally, we dive into a recent case from the Financial Ombudsman Service (FOS) that highlights the importance of robust client documentation in financial advice. Read on for more details!
HMRC Pension Schemes Newsletter 162
When the Lifetime Allowance was abolished back in April, there were a few areas of legislation which weren’t completely clear. Just 2 days before the new rules were due to be implemented, HMRC published Pension Schemes Newsletter 158, which outlined some last-minute changes to legislation, as well as some areas that were still under consideration.
Last month, HMRC published Newsletter 162, which provides a long-awaited update on the areas that were still under consideration in April. They stated that they have considered the feedback they received on the draft regulations, and the final regulations will be introduced as soon as parliamentary time allows.
Starling Bank Fined ￡29m by FCA
Starling Bank has been fined ￡28,959,426 by the FCA. According to the FCA, the bank repeatedly breached a requirement not to open accounts for high-risk customers, and also failed to implement proper anti-money laundering and sanctions processes.
The FCA state that Starling had grown massively between 2017 and 2023, but the measures the bank took to tackle financial crime “did not keep pace with its growth”.
The FCA initially reviewed the financial crime controls at Starling in 2021, as part of a review into financial crime controls at various challenger banks. During this review, the FCA identified some serious concerns, and imposed a requirement on Starling to restrict the opening of new accounts from high-risk customers until this improved. The FCA state that Starling failed to comply with this and “opened over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023.”
Recent FOS Decisions
As it’s been a bit of a quiet month for financial services regulation, I think this is a good opportunity to take a look at some recent decisions that have been made by the Financial Ombudsman Service.
FOS decisions can be really valuable reading for anyone who works in the financial planning world, and I recommend that all paraplanners, in particular, take a look at some recent decisions from time to time. You might find some of the decisions and the rationale given to be surprising. Regardless of whether you agree with the decisions made by the FOS, looking through their decisions gives a really interesting insight into the sort of things they look at when investigating a complaint. I’ve found this to be invaluable when writing suitability reports, and it helps you think critically about the processes and procedures that are in place where you work, and how they would be perceived by an external person.
The case I’m looking at today concludes with the complaint not being upheld. The investigator’s rationale for not upholding the complaint highlights the importance of making sure your files are robust, as a lot of the investigator’s rationale hinges on the research and KYC processes recorded by the adviser and their team.
Decision DRN-4758506
In a nutshell, this case relates to a compliant made by a client who believes the advice given to him was unsuitable. His adviser recommended a pension transfer and consolidation exercise into a less expensive pension. The client was determined to be a ‘moderate’ risk investor, and the adviser recommended a fund in line with this. Around a year after the transfer took place, the client was unhappy that his pension had suffered a significant drop. He argued that he was invested inappropriately and raised a complaint.
When investigating this complaint, the FOS investigator based his decision on what was recorded in the suitability report, as well as the content of the fact find, and the attitude to risk and capacity for loss questionnaires on file. The investigator looked through the client’s answers to the individual questions that made up the questionnaires, and assessed whether these answers, when looked at alone and also when looked at together, could reasonably be accepted as supporting a moderate risk profile. In this case, the answers supported the adviser’s argument.
When a client completes a risk profile or capacity for loss questionnaire, it's so important to make sure that all their answers add up. I’m sure we’ve all seen some questionnaires where certain answers seem to be totally at odds with other answers, or with the overall risk profile. In cases like this, it’s best practice to follow this up with the client and make a note of any conversations. This can make sure that the client really understands the implications of the risk profile they’ve chosen, and will also help make your file more robust.
Effective paraplanning has never been more crucial. At We Complement, our dedicated team of paraplanners is committed to providing comprehensive support, ensuring your financial strategies align seamlessly with current regulations and best practices. Whether you need assistance with documenting your CIP, paraplanning, or enhancing client communications, we’re here to help.