Regulatory TrainingModule 3

ObjectivesMoney launderingComplaints & Compensation

Retail Distribution ReviewFit & ProperTreating customers fairly

Money Laundering

Money LaunderingTo 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 offIt 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 rollRecent 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 industryBanking 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

ActivityHow would you deal with a complaint?

Retail Distribution Review

RDR rules and requirementsEthical 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 firmsEnhanced reputationConsumer trust and confidence in the business to do

“the right thing”Trusts produces loyaltyA perception of professionalismThose 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

QualificationsAll 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 nameThe name and contact details of the accredited body and

a named signatory to the statementThe end date of the verification (max 12 months from the

original verification)Confirmation that advisers hold a verified qualificationConfirmation 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:SeminarsLecturersConferencesCoursesWorkshopsAppropriate e-learning

Researching products, reading newspapers and magazines is not considered to be structured learning

Ethics in PracticeOpen, 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 FairlyThe FSA states that the principle of TCF is essential for:The operation of an efficient retail financial services

marketPromoting consumer confidence in the financial

services market

And that:The principle must be taken on and supported by

senior management in financial firmsThe 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 outcomesWhere 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 awarenessOwnership of suitable productsBetter standards of serviceMore confidence in the market and the products

For Firms and their stakeholders…..Improve customer confidence in the firm and

its productsImproved retentionAdditional salesFewer complaintsImproved staff morale, efficiently and

retentionLower operating costs

The life cycle of financial productsDesign and GovernanceIdentifying target marketsMarketing and promotionSales and advice processAfter-sales information and serviceComplaints handling

The FSA’s Principles of BusinessMaintaining confidence in the financial systemSecuring the appropriate degree of protection for

consumersReducing financial crimeContributing to UK financial stability

Any Questions?