Adviser News - Adviser Edge

Graham Finlay

Graham works within the Strategic & Technical team at Columbia Threadneedle Investments. Graham has undertaken a variety of adviser focused roles since 2003. Over the last few years he has been responsible for developing and delivering presentations at seminars across the UK on a broad range of investment and financial planning related topics. Graham holds a number of industry qualifications, including the CFA Certificate in ESG Investing, Investment Management Certificate (IMC), Diploma in Investment Management (ESG) and has more than 20 years’ industry experience. Graham previously worked with both Edinburgh Fund Managers and Scottish Widows.

Strategic and Technical Sales Manager

15 May 2024

Extending the Sustainability Disclosure Requirements (SDR) regime to Portfolio Management

The Financial Conduct Authority (FCA) has published a consultation paper regarding its proposal ‘extending the Sustainability Disclosure Requirements (SDR) regime to Portfolio Management Services (CP24/8), on the 23rd April 2024.

The FCA have said the portfolio management offerings in question would include Model portfolios, customised portfolios and/or bespoke portfolio management services.

The ‘SDR and investment labels (PS23/16) regime has been developed primarily for retail investors (consumers), the proposals are therefore set to extend the regime to cover wealth management services for individuals and model portfolios for retail investors.

As a reminder the Policy Statement ‘(PS23/16) – SDR and investment labels’, introduced a package of measures for fund managers and the wider financial services marketplace, including Financial and Wealth advisers, that aim to:

inform and protect consumers
improve trust in the market for sustainable investments, and
underpin the UK’s position as a competitive centre for sustainable investments

These aims are to be supported through a number of measures including:

An anti-greenwashing rule for all FCA-authorised firms and covering both retail and professional investors
4 voluntary investment labels

Rules for firms around naming and marketing investment funds based on their sustainability characteristics
Associated disclosure requirements including a new consumer facing disclosure.

The FCA have also stated that the proposals to extend the SDR regime to portfolio management services are consistent with the Consumer Duty. They indicated where firms are subject to both the SDR and labelling regime and the Consumer Duty, the FCA want firms to consider the proposals in the consultation alongside their obligations under the Duty, to help them deliver good outcomes for retail customers.

This means firms should:

act in good faith to deliver sustainability-related products and services, taking into account the reasonable expectations of retail customers;
avoid causing foreseeable harm, including harm caused through greenwashing and buying unsuitable products; and
enable and support retail customers to pursue their financial objectives, including where customers have sustainability-related needs and preferences as part of their investment objectives.

The FCA have set 14^th of June 2024 as the closing date for responding. All feedback will be considered and the FCA plan to publish final rules in the second half of 2024.

It is the expectation of the FCA that the labelling and naming and marketing requirements, and the associated consumer-facing and pre-contractual disclosures, come into force for Portfolio Management Services on 2^nd of December 2024.

Additional Reading:

Consultation Paper – Extending the Sustainability Disclosure Requirements (SDR) regime to Portfolio Management – CP24/8: Extending the Sustainability Disclosure Requirements (SDR) regime to Portfolio Management (fca.org.uk)
Policy Statement – Sustainability Disclosure Requirements (SDR) and investment labels (PS23/16)
Digging Deeper: Sustainability Disclosure Requirements (SDR) and investment labels

Graham Finlay

Read full bio

Strategic and Technical Sales Manager

29 February 2024

FCA – Consumer Duty implementation: good practice and areas for improvement

On the 20^thFebruary 2024, the FCA published their findings (1) of their review on what firms are doing well and what they could be doing better with the implementation of Consumer Duty.

It has been just over 6 months since the Consumer Duty came into force for open products, and the FCA review highlights the good practices that they have seen, and they have identified areas of improvement. Therefore, a useful barometer for all advice firms on how they are progressing with their own Consumer Duty implementation work.

The review highlights the FCA’s findings, imploring firms to continue to make improvements in line with good practice identified. Noting that firms that identify gaps, should address these.

The FCA hopes that the publication builds on the review of firms’ implementation plans(2) and their fair value frameworks(3) and previous communications. It:

reminds firms of the consumer outcomes required by the Duty
sets out recent good practice, including in response to their earlier supervisory work, to deliver these outcomes
highlights areas for improvement where firms have more to do

The FCA have identified areas of good practice and areas of improvement required under the following areas. I have highlighted from the review just one example of each:

Culture, governance and monitoring

Good practice – Alter their company purpose to signal to staff that their actions and behaviour should focus on customer outcomes.

Area for improvement – need better data and monitoring strategies. Firms should not be complacent and assume that they can just repackage existing data. We want firms to think seriously about what information they need to really understand their customers’ outcomes and issues they may be facing.

Consumers in vulnerable circumstances

Good practice – Improve the way they capture and record information about customer vulnerabilities or expand support to better meet customer needs.

Area for improvement – In the investment market, not prioritise identification of and support for vulnerable customers.

Products and Services

Good practice – Improve the way they capture and record information about customer vulnerabilities or expand support to better meet customer needs.

Area of improvement – Not share information effectively across supply chains

Price and value

Good practice – Moving some investment clients away from more expensive bespoke models to simpler model portfolios, where they are better suited to the size of the customer’s investment

Area of improvement – Unable to justify what benefits they provide for the remuneration they receive.

Consumer understanding

Good practice – Develop ways to test customer understanding such as surveys, experiments, and interviews.

Area of improvement – Undermine customers’ trust by pushing products or services that are too high-risk or complex for them

Consumer support

Good practice – Put processes in place to monitor the support they provide and identify areas for improvement

Area of improvement – Not train staff well enough in terms of having complex conversations with customers.

This review follows on from previous FCA statements such as ‘Not once and done’ (4) emphasising that they see Consumer Duty as ever evolving in the business. Improvements can be continually made to ensure that the client is receiving the best outcome possible and if gaps or improvements are identified then they should be acted upon.

Updates to Sustainability Disclosure Requirements and investment labels

The Financial Conduct Authority (FCA) published the Policy Statement on Sustainability Disclosure Requirements (SDR) and investment labels (PS23/16) on the 28th of November 2023.

The Policy Statement sets out the FCA’s ‘final rules and guidance to improve trust and transparency to the market for sustainable investment products,’ aimed at reducing greenwashing and associated harms. The focus of the Policy is similar to Consumer Duty, the protection of retail investors.

The Policy Statement has confirmed:

Four “Sustainability” investment labels.
- Improver, Focus, Impact & Mixed Goals
- ‘Sustainability Mixed Goals’ being a new additional label
A new anti-greenwashing rule for all authorised firms (ESG3.1R).
- The FCA has also published general guidance on the anti-greenwashing rule GC23/3and information for consumers on identifying sustainable investments (Identifying sustainable investments | FCA).
New rules and guidance for firms marketing investment funds based on their sustainability characteristics.
Requirements for consumer-facing information to enable consumers to understand the key sustainability features of a product.
Requirements for detailed information in pre-contractual, ongoing product-level and entity-level disclosures aimed at institutional investors and consumers wanting more information.
Distributors (including Financial Advisers) must ensure the labels and consumer-facing disclosures are made available to retail investors.

The FCA have made some changes to the proposals outlined in the original Consultation Paper (CP22/20), in response to feedback from the industry and other stakeholders. These include:

The labelling regime now includes a fourth “Sustainability Mixed Goals” label for funds that invest across a blend of different sustainability objectives.

There are sustainable funds which would not have fitted neatly into the “Focus”, “Improvers” or “Impact” labels because their investment strategy contains attributes of more than one label, such as Multi Asset or Multi Manager funds. The new “Sustainability Mixed Goals” label means that these funds are now able to apply for a label, if they meet the qualifying criteria.

Portfolio management products and services have been excluded from the scope of the investment labels and disclosure regime for the time being.

The initial consultation included discretionary portfolios within the definition of “sustainability product” and included distinct criteria for discretionary strategies wishing to use a label.

The FCA has removed discretionary portfolios (& MPS) from the scope of the new rules, however it intends to consult on proposals to extend the rules to these products in Q1 2024.

Naming and marketing rules

The FCA have amended the naming and marketing rules to allow asset managers to use sustainability-related terms such as “green”, “net-zero”, “responsible” when marketing non-labelled funds to retail investors, subject to the anti-greenwashing rule below. However, these funds will still need to produce the same disclosures as labelled funds and include a statement to clarify that the fund does not use a label and why.

It will still be the case that no fund may include the word “Sustainable” (or any variation) or “Impact” in its name if it does not use a label.

Anti-Greenwashing rule

The anti-greenwashing rule which applies to all authorised firms remains, with the addition of ESG 4.3.1R and will also be supplemented by new guidance GC23/3. Firms must ensure that any references to the sustainability characteristics of a fund are consistent with its sustainability profile and are clear, fair and not misleading.

The FCA have pushed back the implementation date of this new rule to 31^st May 2024, to allow a period of consultation on the new guidance. The deadline for response to the Consultation Paper is the 26^th January 2024.

Timetable

26^th January 2024 – The FCA’s consultation on GC23/3 (guidance in relation to the anti-greenwashing rule) closes.
Q1 2024 – The FCA will consult on the extension of the investment labelling and disclosure regime to discretionary portfolio strategies
31^st May 2024 – Anti-greenwashing rule and guidance comes into force.
31^st July 2024 – Firms can begin to use labels, with accompanying disclosures
2^nd December 2024 – Naming and marketing rules come into force, with accompanying disclosures
2^nd December 2025 – Ongoing product-level and entity-level disclosures for firms with assets under management of over £50bn
2^nd December 2026 – Entity-level disclosure rules extended to firms with assets under management of over £5bn

Additional Reading:

Policy Statement – Sustainability Disclosure Requirements (SDR) and investment labels (PS23/16)
Consultation Paper – Sustainability Disclosure Requirements (SDR) and investment labels (CP22/20)
Guidance Consultation on Anti-Greenwashing – GC23/3: Guidance on the anti-greenwashing rule | FCA
Identifying sustainable investments – Identifying sustainable investments | FCA

Graham Finlay

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Strategic and Technical Sales Manager

8 November 2023

FCA : Consumer Duty – Not once and done

The FCA’S Nisha Arora, Director of Cross Cutting Policy and Strategy, delivered a speech on the 1st November marking three months since Consumer Duty came into force. Consumer Duty: Not once and done | FCA

The theme of the speech was that the implementation of Consumer Duty is not a ‘once and done event’.

“The Duty isn’t something where you can tick the Consumer Duty box on your to-do list and move on. It’s something that needs to become part of who you are as a firm, your culture, and how you do business, running across your whole organisation from Board to front-line delivery, from product design to communications and customer support. “

The speech highlighted that firms need to ensure that its customers’ interests are central to its culture and purpose, and that this is embedded throughout the organisation, in the strategy, governance, leadership and people policies. It will be a “golden thread” that runs through all the firms’ conversations with the FCA.

The speech also outlined the FCA’s expectations on where businesses should now be focusing and also what they should be expecting in the future from the FCA.

Key takeaways from the speech

Statistics from a recent survey show there is a great need for the Consumer Duty particularly in protecting vulnerable consumers.
This is an ongoing duty that should be firmly embedded in a firm’s culture.
Firms must review what has been done so far and ensure that any necessary changes have been made and can demonstrate they meet the intended outcomes.
Firms should now be looking at complying with the closed products and services deadline of 31 July 2024.
The FCA take the Duty very seriously and firms’ can expect enforcement action if there are failures.
Board scrutiny and thorough MI will inform the FCA’s review of firms’ compliance with the Duty so not to be taken lightly.
The FCA will work with the FOS to review Complaints data and publish good and bad practices.
There will be a FCA webinar on 6^th December 2023 to discuss its findings so far. You can sign up here.

It would seem clear from the speech that the FCA consider Consumer Duty to be a continuing key focus for all regulated firms. Emphasising the need embed the Duty within the culture and purpose of the business. A recent Adviser Edge article discusses key actions that a firm may consider when reviewing their culture in relation to the duty. Embedding Consumer Duty into your firm’s culture – Adviser Edge (columbiathreadneedle.co.uk)

Also, within the Consumer Duty Final Guidance paper the FCA clearly set out the type of questions firms should expect to be asked in relation to their culture and governance arrangements in relation to the Duty. You can find more information on this in Consumer Duty: Key questions for firms to ask themselves.

For more information and further reading

Consumer Duty: Not once and done | FCA

Embedding Consumer Duty into your firm’s culture – Adviser Edge (columbiathreadneedle.co.uk)

Consumer Duty: Key questions for firms to ask themselves.

The FCA will be hosting a webinar to discuss its findings on firms’ approach to Consumer Duty on 6 December 2023:You can sign up here.

Graham Finlay

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Strategic and Technical Sales Manager

2 October 2023

IFS release report on Reforms to Inheritance tax

A number of newspapers have recently published articles on the UK Government exploring major changes to inheritance tax (IHT) in advance of a UK general election.

Inheritance tax is arguably the UK’s most disliked tax. A recent YouGov poll found that just 20% of people deemed inheritance tax ‘fair’ (Ansell (2023)). This compared with almost 60% for National Insurance contributions. There is near-universal agreement that inheritance tax in its current form needs reform, but no consensus about what that reform should be.

When Rishi Sunak was asked about discussions inside government on the issue, the prime minister said he did not “comment on tax speculation”.

Shortly after the articles went to press, on the 27^th September 2023, the Institute for Fiscal Studies (IFS) published a report on ‘Reforming inheritance tax’.

Lots of interesting insights in the report into the wealth of the nation and highlights issues with the current IHT regime.

Key findings from the IFS report

1. Inherited wealth is growing – and set to continue to grow – compared with earned incomes, and it will have a growing impact on inequalities by parental background.

While inheritances will remain small for those with the least wealthy fifth of parents, for those with the wealthiest fifth of parents they are set to rise from averaging 17% of lifetime income for those born in the 1960s, to averaging 30% of lifetime income for those born in the 1980s. If the annual flow of non-spousal inheritances next year was equally shared across those aged 25, this would imply each receiving around £120,000.

2. Exemption thresholds, which allow many couples to pass on up to £1 million tax-free, mean that the share of deaths resulting in inheritance tax is small, at around 4% in 2020–21, but a larger and growing proportion are potentially affected by the tax.

The proportion of deaths resulting in inheritance tax is set to grow to over 7% by 2032–33. The number of people affected by inheritance tax will be still larger. By 2032–33, one in eight people (12%) will have inheritance tax due either on their death or their spouse or civil partner’s death.

3. Inheritance tax revenues are small, at £7 billion (or 0.3% of GDP) a year.

However, we forecast that by 2032–33 they will rise to just over £15 billion in today’s prices (0.5% of GDP), driven by increasing levels of wealth held by subsequent generations of retirees. It is of growing importance that this tax is well designed.

4. The current cost of abolishing inheritance tax would be £7 billion.

Around half (47%) of the benefit would go to those with estates of £2.1 million or more at death, who make up the top 1% of estates and would benefit from an average tax cut of around £1.1 million. The 90% or so of estates not paying inheritance tax would not be directly affected by such a reform.

5. There are several problems with the current design of inheritance taxation.

Reliefs for agricultural and business assets and certain classes of shares, and the total exemption of pension pots from inheritance tax, open up channels to avoid the tax and are consequently costly and inequitable and distort economic decisions. The residence nil-rate band, which gives special treatment to property passed to direct descendants, raises similar types of problems and is of greater benefit to those in London and the South. There is a clear case for eliminating the special treatment of all of these types of assets.

6. Abolishing agricultural and business reliefs and bringing pension pots within the scope of inheritance tax could raise up to around £1½ billion a year.

How much revenue would be raised is uncertain and depends on various factors including whether other channels are used to avoid inheritance tax. Making these changes together would reduce the scope for substituting one avoidance channel for another.

7. Four-fifths of the tax revenue from reform to business relief could be captured just by capping the relief at £500,000 per person, rather than outright abolition.

Most business wealth is concentrated among those with high wealth, so the fiscal cost of an additional half a million pounds threshold for business wealth would be low, though the special treatment would remain unfair and distortionary. Around 90% of business wealth bequeathed is given as part of an estate worth over £2 million.

8. Remove the special treatment for residential property.

Abolish the residence nil-rate band (currently set at £175,000) and extending the nil-rate band from £325,000 to £500,000 would cost around £700 million a year and hold the proportion of deaths resulting in inheritance tax down at around 4%, while making the tax system fairer.

9. A reform that capped agricultural and business reliefs, brought pension pots within the scope of inheritance tax and abolished the residence nil-rate band could fund an increase in the nil-rate band to around £525,000 or a cut in the inheritance tax rate from 40% to around 25%.

10. Increasing the nil-rate band to hold the share of deaths resulting in inheritance tax down at its long-run average of 4% would require a nil-rate band of £380,000 and cost around £900 million a year.

The cost of limiting the scope of the inheritance tax system in this way would grow over time, reaching £2.7 billion by 2032–33.

11. There are other changes to taxation at death that would improve efficiency and fairness, and raise revenue.

Levying capital gains tax at the point of death would raise around £1.6 billion a year. Levying income tax on withdrawals from inherited pension pots regardless of the age at which the giver passed away would also raise further revenue.

12. Inheritance tax as currently designed has only a small impact on the distribution of inheritances received and therefore on intergenerational wealth mobility.

The wealthiest fifth of donors will bequeath an average of around £380,000 per child, and pay inheritance tax of around 10% of this amount. By contrast, the least wealthy fifth of parents will leave less than £2,000 per child. To have a larger impact on intergenerational mobility, inheritance tax would have to be substantially expanded in scope.

13. By the time inheritances are received, wealth inequality is already substantial.

Inheritances are most often received when people are in their late 50s or early 60s. Around the ages of 50–54, children of the wealthiest fifth of parents have an average of £830,000 in wealth, while children of the least wealthy fifth have on average £180,000. While a reformed inheritance tax could do more to promote intergenerational mobility, big wealth inequalities by parental background already exist before inheritances are received.

For more information

IFS Reforming inheritance tax –Reforming-inheritance-tax-1.pdf (ifs.org.uk)

Ansell, B., 2023. A puzzling inheritance: why, in a world where wealth matters more than ever, we want to tax it less. https://benansell.substack.com/p/a-puzzling-inheritance

Graham Finlay

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Strategic and Technical Sales Manager

21 August 2023

FCA review of Assessment of Value (AoV)

FCA finds fund managers have improved their Assessment of Value (AoV) processes, but more work is needed on fund pricing and fees

On the 10^th of August 2023, the FCA published the findings of its recent review of the processes Authorised Fund Managers (AFM) use for AoVs.

The FCA visited and surveyed 14 AFMs, of different business models and sizes, to review their AoV arrangements between November 2022 and March 2023. This work followed on from the first review undertaken in July 2021.

The reviews were held to understand firm processes, the inputs they used and their AoV governance. Case studies were used to explore how each firm assessed value against the minimum considerations.

The findings were evaluated against the requirements and guidance in the FCA Handbook and against the July 2021 findings. This included COLL requirements for undertaking the AoV, the report content and obligation to notify investors, and the requirements for independent directors on the AFM Board.

Summary of the findings from the review:

Compared with the last review, many firms have a better understanding of the rules and have significantly improved their AoV processes.
Most firms are making fewer assumptions within their analysis that they cannot evidence as reasonable and are presenting higher quality management information to AFM Boards and AoV committees.
Outlier firms in the review were typically firms who were not able to support their assumptions and assessments with sufficient evidence.
The FCA expects firms to be able to substantiate any claims they make.

The FCA found continuing maturity in AoV processes that resulted in many firms taking remedial action when poor value was identified including some reductions in fund fees, typically by a few basis points. Overall, this amounted to savings for fund investors of millions of pounds. The FCA also saw some firms move investors in pre-Retail Distribution Review (RDR) share classes to ‘clean’ classes with no trail commission. The savings for these investors were even more significant.

While the FCA found firms had a better understanding for the need to justify fees, most remedial action did not involve cutting funds’ fees. Where fees were cut, the share class fee reductions were almost always driven by adverse comparable market rates findings rather than other considerations.
This suggests that fund managers continue to ‘cluster’ around price points identified in the AMMS as a market failure. Some firms cited erroneous operational or regulatory barriers to reducing fees.
AFM Boards or their committees sometimes reached conclusions that did not take into account improved management information.
Tensions between a fund’s profitability for a firm and assessing the fund’s value for money for investors appear to be influencing AoV decision making and outcomes. This is a conflict for AFM Boards to be aware of and to manage.

This review is important to the UK Financial Adviser through Consumer Duty. Consumer Duty requires Advice firms to act to deliver good outcomes for retail customers and to consider cross-cutting rules and the four outcomes.

AoVs are crucial for the adviser to ensure that they can demonstrate fair value in the funds that recommend to their clients, under the Price and Value outcome. A more consistent AoV processes across the fund management industry will enable advice firms to make better, well-informed assessments of value when selecting and recommending funds. This will help to ensure consumers receive fair value from their investments in authorised funds.

For more information

Authorised fund managers’ assessments of fund value 2023 | FCA
Fund managers falling short on assessing the value of their funds | FCA
COLL 1 – FCA Handbook
Asset management market study | FCA

Graham Finlay

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Strategic and Technical Sales Manager

16 August 2023

FCA pauses simplified advice plans

The FCA pause plans to create a new simplified advice regime after firms pushed back on the initial proposals.

On the 3rd August 2023, the FCA announced it will not be going ahead with reforms aimed at encouraging people with cash savings to invest through a stocks and shares ISA, whilst receiving a stripped-back form of advice.

Instead, the FCA has outlined the basis for a joint wider review of the advice guidance boundary. It confirmed that the review would be undertaken in conjunction with the Treasury, as part of its work to ensure that consumers “get the help they want, at the time they need it, and at a cost that is affordable, to help them make informed financial decisions”.

The statement highlighted that key themes and insights had emerged from previous work and together with feedback from within the industry and consumer groups, this will guide the next phase of the review.

‘The consistent feedback from the consultation was that firms wanted the proposals to go further in terms of examining the boundary between advice and guidance – in rolling this work into the boundary review, we will be able to consider and develop proposals for more significant reform,’

The decision to pause work on the simplified advice regime was made after the industry raised concerns about how the new framework would work and pushed for wider reforms to the definition of regulated advice.

The FCA’s statement also said: ‘Given the potential for more significant change that is now possible through the advice guidance boundary review, and given the limited support from industry for the initial set of proposals consulted on, we have decided to roll the development of these proposals, taking on board the feedback we received, into the broader review.’

‘This will allow us to support the more substantial changes that are being asked for and considered through the review.’

The simplified advice regime had proposed relaxing advice rules to encourage firms to offer a new form of simplified financial advice, called ‘core investment advice’, for clients with £10,000 in cash savings.

Under the core investment advice framework, there would have been a relaxation of the independent/restricted definitions, advice fees could be accepted in instalments, and a simplified approach to client fact finds would have been allowed.

The FCA indicated that the review would leverage the Consumer Duty, to set clear expectations for the support that firms provide their customers and ensure that consumer protection remains at the core of any future regime. They confirmed that they will work closely with the Financial Ombudsman Service to ensure that this happens.

It was indicated that a further update in a policy paper that will be published in the autumn 2023.

For more information

Financial Lives 2022 survey: insights on vulnerability and financial resilience relevant to the rising cost of living | FCA

Graham Finlay

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Strategic and Technical Sales Manager

4 July 2023

FCA publishes Consumer Duty firm survey

On the 28 June 2023 the FCA published the results of their survey into how prepared firms are for the implementation of Consumer Duty.

The FCA commissioned Ipsos UK to undertake an anonymous survey of 1,230 firms in some of the sectors in scope of the Consumer Duty (the Duty) to help them understand how prepared firms were in meeting the implementation deadline of 31 July 2023. Out of the survey participants, 175 were ‘Adviser and intermediaries’ and 158 ‘Wealth Managers’. 27% of participants are therefore involved directly in advising clients.

One of the key findings of the survey is:

‘Most firms believed they were on course to implement the Duty by the 31 July deadline. 64% of firms surveyed said they would be fully compliant by the deadline. 23% said they would comply with most requirements by the deadline but would still have some work to do. 7% of firms surveyed said they would still have significant work to do after the deadline or had not started work on the Duty.’

All firms were urged to make the most of the time before the 31 July implementation deadline and the FCA issued next steps for firms to take.

In addition, they also highlighted key questions from FCA Finalised Guidance 22/5 for firms to keep asking themselves. These should help firms reflect on their implementation of the Duty and identify gaps or areas for improvement.

10 key questions for firms to consider:

Are you satisfied your products and services are well designed to meet the needs of consumers in the target market, and perform as expected? What testing has been conducted?
Do your products or services have features that could risk harm for groups of customers with characteristics of vulnerability? If so, what changes to the design of your products and services are you making?
What action have you taken as a result of your fair value assessments, and how are you ensuring this action is effective in improving consumer outcomes?
What data, MI and other intelligence are you using to monitor the fair value of your products and services on an ongoing basis?
How are you testing the effectiveness of your communications? How are you acting on these results?
How do you adapt your communications to meet the needs of customers with characteristics of vulnerability, and how do you know these adaptions are effective?
What assessment have you made about whether your customer support is meeting the needs of customers with characteristics of vulnerability? What data, MI and customer feedback is being used to support this assessment?
How have you satisfied yourself that the quality and availability of any post-sale support you have is as good as your pre-sale support?
Do individuals throughout your firm – including those in control and support functions – understand their role and responsibility in delivering the Duty?
Have you identified the key risks to your ability to deliver good outcomes to customers and put appropriate mitigants in place?

For more information

Consumer Duty firm survey results – Spring 2023

FG22/5: Final non-Handbook Guidance for firms on the Consumer Duty
CT Adviser Edge Consumer Duty key questions for firms to ask themselves

Graham Finlay

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Strategic and Technical Sales Manager

12 May 2023

FCA publishes the findings of its review into fair value assessments under the Consumer Duty

On 10 May 2023 the FCA published the findings of their review into firms’ approaches to fair value assessments under the Consumer Duty.

The FCA reviewed 14 firms’ fair value assessment frameworks, which set out the approach firms are taking in this area. The FCA are sharing its observations from this review as other firms will find them helpful when implementing its price and value requirements. This publication does not introduce any new requirements on firms, but has set out some suggested areas of focus, including best practices.

The FCA has assessed fair value frameworks against the following 5 criteria:

Understanding of fair value rules – how clearly the fair value assessment defines fair value and how it applies to their products.
Assessing value – how costs and benefits to consumers, including non-financial costs and benefits, have been considered.
Considering contextual factors – how the firm has considered broader contextual factors relevant to value.
Assessing differential outcomes – approaches to assessing the range of consumer outcomes such as differential pricing and outcomes for vulnerable consumers.
Data and governance – the approach to measuring and monitoring fair value using data and how a firm’s governance arrangements operate.

In response, the FCA has identified 4 key areas for further consideration by firms:

collecting and monitoring evidence that demonstrates that products and services represent fair value
clear oversight and accountability of the necessary remedial actions if they do not provide fair value
where relevant, ensuring sufficient analysis of the distribution of outcomes across groups of consumers in the target market, beyond broad averages, to demonstrate how each group receives fair value
summarising and presenting fair value assessments in a way that enables decision-makers to robustly discuss whether the product or service represents fair value, such as by being clear on any limitations in the analysis or evidence

Good to their word, the FCA are continuing to advise and direct businesses, as they work towards 31 July 2023 and the implementation of the duty.

Also, on 10 May, Sheldon Mills, FCA Executive Director, Consumers and Competition gave a speech on the Implementation of the Consumer Duty – 82 days and counting.

For more information

Draft of speech

Findings from the FCA’s review of fair value frameworks

Graham Finlay

Read full bio

Strategic and Technical Sales Manager

12 May 2023

Countdown to the Consumer Duty – a speech by Sheldon Mills

On 10 May 2023, Sheldon Mills, FCA Executive Director, Consumers and Competition gave a speech on the Implementation of the Consumer Duty – 82 days and counting.

In the speech he states: “Firms should already be asking themselves:

Does your purpose and culture align with your obligations under the Duty and support the delivery of good outcomes for customers?
Is the Duty being considered in all relevant discussions such as strategy, remuneration and risk?
Have you made sure your remuneration and incentive structures drive good outcomes for customers?
Are you prioritising delivering good outcomes for customers in a changing external environment?

These are the types of questions we will ask, and the types of questions the Duty champion and Chair should ask internally.”

He goes on to state what firms can expect from the FCA from 31 July:

“Our supervisory and enforcement approach will be proportionate to the harm – or risk of harm – to consumers.

We will prioritise the most serious breaches and act swiftly and assertively where we find evidence of harm or risk of harm to consumers.

In some cases, firms can expect us to take robust action, such as interventions or investigations, along with possible disciplinary sanctions.

The Duty is outcomes-based, and a key part of the Duty is that firms understand and evidence the outcomes their customers are receiving. This enables them to monitor their compliance and to tackle potential breaches at an early stage.

We want firms to harness the benefits of data and technology to improve their services and understand the outcomes they achieve for their customers.”

Good to their word, the FCA are continuing to advise and direct businesses, as they work towards 31 July 2023 and the implementation of the duty.

Also, on 10 May the FCA published the findings of their review into firms’ approaches to fair value assessments under the Consumer Duty.

For more information

Draft of speech

Findings from the FCA’s review of fair value frameworks

Graham Finlay

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Strategic and Technical Sales Manager

27 February 2023

FCA release Discussion Paper on updating and improving the UK regime for asset management

The FCA have published a Discussion Paper (DP23/2) on updating and improving the UK regime for asset management and have asked industry participants, including asset managers, fund managers, platform providers and financial and investment advisers for their ideas on how the industry should be regulated in the future.

Background:

The FCA are responding to the recent government activity (see below) by making detailed, firm-facing requirements in their rulebooks as well as detailed requirements of retained EU law into its rules for asset managers. The FCA wish to respond to, and support the development of, the industry, while ensuring that UK retail investors have access to a range of good value products and are treated fairly. The FCA want a UK wholesale market that supports the economy and is open to innovation, underpinned by high standards of market integrity and consumer protection. The FCA also want to see firms putting consumers’ needs first and to reduce the impact of operational disruptions.

Recent government activity:

The Government’s Future Regulatory Framework (FRF) review was set up to decide how the regulatory framework for financial services should adapt to the UK’s new position outside the EU. The regulatory framework will also change once the Financial Services and Markets Bill, currently before Parliament, becomes law. The Treasury and the financial services regulators will then start to move firm-facing requirements from legislation into regulatory rulebooks. In practice, this means the Treasury repealing retained EU law and replacing it with an appropriate UK framework.

Key points in the Discussion Paper include:

creating a common framework of rules for asset managers
changing the boundary of the UK UCITS regime
working with the Treasury to amend the threshold at which AIFMs must apply the full-scope rules and review the current AIFM regime where it could be of more value to professional investors
amending fund rules or add guidance either to make clearer the requirements on portfolio managers of funds, or to set minimum contractual requirements between host AFMs and portfolio managers
potentially amending the rules and guidance around liquidity stress testing
expectations on the FCA to be clearer on investment due diligence requirements
expectations of depositaries to be clarified
consider removing or modifying prescriptive requirements in the retail fund rules
innovation and technology to enable fund managers to make wider use of advances in technology without weakening investor protection
client documentation improvements: prospectus content and readability, report and accounts disclosures. Please note there is a separate consultation exploring PRIIPS and for an alternative framework in the UK.

The Discussion Paper outlined questions and areas where FCA are requesting input. They are inviting comments by 22 May 2023.

For more information

DP23/2: Updating and improving the UK regime for asset management

Future Regulatory Framework (FRF) Review

PRIIPs and UK Retail Disclosure – a Consultation

Graham Finlay

Read full bio

Strategic and Technical Sales Manager

27 February 2023

FCA Consumer Duty: Feedback on firms’ implementation plans

With five months to go before the Consumer Duty comes into force, the FCA has published its review on how firms are planning to implement the Duty and highlighted areas for firms to focus upon.

In its final rules the FCA set out its expectations including finalised guidance around board approval of firms’ implementation plans by the end of October 2022. The FCA has now reviewed the implementation plans of a number of larger firms (fixed firms) with dedicated FCA supervision teams and has shared a number of findings, which will be relevant to other firms looking to finalise their own implementation projects.

They have made a number of suggestions for firms, outlining good practices and also areas that required improvement:

Governance and oversight
Culture and people
Deliverability
Third parties
The four outcomes
Data strategies

The FCA has also highlighted three key areas where firms should particularly focus their attention during the second half of the implementation period:

Effective prioritisation
Embedding substantive requirements
Working with other firms

They note that whilst some plans showed a good understanding of the Consumer Duty, others suggested that firms might be further behind in their thinking and planning, which brings about a risk that the firm will fail to meet the implementation deadline of 31 July 2023.

For more information

FCA Consumer Duty implementation plans

PS22/9 – A new Consumer Duty – feedback to CP21/36 and final rules

The FCA Consumer Duty – structured CPD course

Graham Finlay

Read full bio

Strategic and Technical Sales Manager

30 January 2023

HM Treasury consults on plans to replace PRIIPs Regulation

HM Treasury has published a consultation on the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation and the UK Retail Disclosure regime.

The consultation (PRIIPs and UK Retail Disclosure – A consultation) outlines HM Treasury’s plans to replace the existing UK PRIIPs Regulation for a new UK retail investment disclosure framework regime. This was announced as part of Jeremy Hunt’s Edinburgh Reforms, a suite of financial services reforms, on 9 December 2022.

Highlighted key issues with the current PRIIPs regime

The consultation identifies a number of ‘Issues with the PRIIPs Regulation’, including the following points:

Confusing information, reduced choice and regulatory burdens – the range of standardised and non-standardised disclosure documents are confusing for retail customers;
The regulatory burden of the PRIIPs Regulation can dissuade firms from making retail products available in the UK;
Comparability – the presentation of significantly different products (e.g. from ETFs to complex derivatives) in similar standardised documents can be misleading to retail investors, indicating that such investments carry comparable risks;
Division of regulatory powers – retail disclosure rules are spread across a broad legislative landscape, which can be confusing and onerous for firms; and
The UCITS interaction – UCITS rules and PRIIPs rules can currently apply to very similar retail products.

A new direction for retail disclosure – HM Treasury’s proposals

In considering a new UK regime for retail disclosure, HM Treasury has been guided by the following principles:

To ensure that retail investors have access to clear and useful information to make evidence-based decisions for their prospective investments
To ensure that the disclosure that retail investors receive is proportionate to the risk that they are taking in purchasing an investment product and the complexity of the decision that they are making
To provide additional choice for retail investors and to reduce burdens for firms

Under the new UK regime, the FCA will determine the format and presentation requirements for disclosure and will be maintained within the FCA handbook.

HM Treasury outlines that disclosure requirements ought to be flexible and less prescriptive, although acknowledges that “where an investment is high risk or complex, more prescriptive disclosure requirements may be necessary”.

The PRIIPs Regulation will be repealed by the Financial Services and Markets Bill and the government intends to commence this as a matter of priority. Feedback to the consultation closes on 3 March 2023.

For more information

PRIIPs and UK Retail Disclosure – A consultation

The Edinburgh Reforms

Graham Finlay

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Strategic and Technical Sales Manager

21 December 2022

Government removes MiFID II’s 10% depreciation reporting rule as part of the Edinburgh Reforms

The UK government is set to scrap the MiFID II (via COBS 16A) legislation that required firms to inform investors when their portfolios fell by 10% or more.

Under the Government’s recent ‘Edinburgh Reforms’ (and through The Markets in Financial Instruments (Investor Reporting) (Amendment) Regulations 2022) this full (COBS 16A) requirement is to be removed from 18 January 2023.

‘Regulation 2(4) removes obligations for investment firms providing portfolio management services to a retail client to inform the client when the overall value of the portfolio depreciates (Article 62 of the Commission Delegated Regulation).’

The regulations also include further measures, which will take effect from 7 June 2023:

An amendment to the rules on how investment firms should provide information, so that they apply in the same way to both retail and non-retail clients and potential clients.
A requirement for information to be provided to all clients and potential clients in an electronic format rather than a “durable medium”.
A carve-out in practice for investment firms with retail clients or potential retail clients, where such clients have been informed of, and have exercised their right to, receive the information on paper.

10% depreciation report rule

MiFID II (via COBS 16A) had required firms providing portfolio management services to inform investors where the value of their portfolio dropped by 10% or more compared with its value in their last periodic statement (at least quarterly). They also had to inform the client regarding any subsequent fall of 10% or more over the same reporting period.

Since March 2020, the FCA had adopted temporary measures for the requirement. As long as the client received an initial notification for the first 10% fall, the requirement to issue subsequent notifications, within the same reporting period, was removed. These temporary measures had been extended to the end of 2022.

The removal of this regulation has been broadly welcomed by all parties, as many found the notifications risked panicking investors into moving out of markets and crystallising losses.

For more information

Financial Services: The Edinburgh Reforms

Edinburgh Reforms hail next chapter for UK Financial Services – GOV.UK (www.gov.uk)

HM Treasury policy statement on ‘Building a smarter financial services framework for the UK’

Graham Finlay

Read full bio

Strategic and Technical Sales Manager

19 December 2022

Portfolio strategy letter issued from the FCA for financial advisers and intermediaries

A Dear CEO/Director letter was sent out to financial advisers and intermediaries in early December 2022. The aim of the letter was to provide an update on the FCA’s view of key harms (following up on the strategy letter issued in January 2020) in the financial advice sector.

The letter outlines the expectations of the financial adviser and summarises the work they (the FCA) intend to undertake and focus on over the next 2 years. The letter specifically states that ‘retirement income advice will be a focus for us over the next two years as we seek to explore how firms are delivering this and whether consumers are getting suitable advice.’ Further communication in the area is due to follow in early 2023.

The letter also confirms that ‘A separate communication will be sent in the coming months explaining further the impact the new Consumer Duty will have on financial adviser and intermediaries firms and some examples of how the Consumer Duty outcomes will apply to firms in practice.’ Something to look out for!

Key areas of concern highlighted in the letter:

Suitability of advice
Pension and investment scams
Firm failure and phoenixing
Ongoing services
Diversity
Sustainability

For more information

FCA portfolio strategy letter for financial advisers and intermediaries December 2022

FCA portfolio strategy letter for financial advisers January 2020

Graham Finlay

Read full bio

Strategic and Technical Sales Manager

26 October 2022

FCA release Sustainability Disclosure Requirements (SDR) and Investment Labels Consultation Paper

The FCA released the long-awaited Sustainability Disclosure Requirements (SDR) and Investment Labels Consultation Paper CP 22/20 on 25 October 2022, covering a raft of new measures to tackle greenwashing.

The paper marks a major – and highly positive – turning point in retail sustainable investments. It puts clients’ needs front and centre and in so doing, tackles greenwashing and trust issues head on.

Amongst the proposals the FCA are set to introduce are ‘sustainable investment product labels that will give consumers the confidence to choose the right products for them’.

There are three proposed labels:

‘Sustainable Focus’ for funds that invest in assets (equities, bonds etc) that are widely regarded as sustainable.
‘Sustainable Improvers’ for funds that aim to encourage positive progress – often through engagement (stewardship) activity.
‘Sustainable Impact’ for funds with a significant emphasis on delivering measurable real world progress.

In addition, the FCA also flagged their intention to clarify the information needed by advisers in the near future: “We are exploring how to introduce rules for financial advisers aimed at confirming that they should take sustainability matters into account in their investment advice and understand investors’ preferences on sustainability to ensure their advice is suitable……We intend to follow with a separate consultation in due course.”

The consultation period will run until 25 January 2023.

For more information

Sustainability Disclosure Requirements (SDR) and Investment Labels Consultation Paper (CP22/20)

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Risk Disclaimer

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